Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the iDreamSky Technology Holdings Limited (HKG:1119) share price is down 12% in the last year. That contrasts poorly with the market return of 12%. Because iDreamSky Technology Holdings hasn't been listed for many years, the market is still learning about how the business performs. In the last ninety days we've seen the share price slide 19%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Unfortunately iDreamSky Technology Holdings reported an EPS drop of 9.9% for the last year. We note that the 12% share price drop is very close to the EPS drop. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on iDreamSky Technology Holdings' earnings, revenue and cash flow.
A Different Perspective
While iDreamSky Technology Holdings shareholders are down 12% for the year, the market itself is up 12%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Notably, the loss over the last year isn't as bad as the 19% drop in the last three months. So it seems like some holders have been dumping the stock of late - and that's not bullish. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for iDreamSky Technology Holdings that you should be aware of before investing here.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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