It’s easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Wharf Real Estate Investment Company Limited (HKG:1997) share price slid 18% over twelve months. That’s disappointing when you consider the market returned -7.9%. Because Wharf Real Estate Investment hasn’t been listed for many years, the market is still learning about how the business performs. The share price has dropped 22% in three months. However, one could argue that the price has been influenced by the general market, which is down 11% in the same timeframe.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Unhappily, Wharf Real Estate Investment had to report a 34% decline in EPS over the last year. This fall in the EPS is significantly worse than the 18% the share price fall. It may have been that the weak EPS was not as bad as some had feared.
We know that Wharf Real Estate Investment has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Wharf Real Estate Investment, it has a TSR of -15% for the last year. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We doubt Wharf Real Estate Investment shareholders are happy with the loss of 15% over twelve months (even including dividends). That falls short of the market, which lost 7.9%. There’s no doubt that’s a disappointment, but the stock may well have fared better in a stronger market. Notably, the loss over the last year isn’t as bad as the 22% drop in the last three months. This probably signals that the business has recently disappointed shareholders – it will take time to win them back. Importantly, we haven’t analysed Wharf Real Estate Investment’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.