By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. Just take a look at IBO Technology Company Limited (HKG:2708), which is up 59%, over three years, soundly beating the market return of 3.8% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 17% in the last year.
The past week has proven to be lucrative for IBO Technology investors, so let's see if fundamentals drove the company's three-year performance.
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 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).
We know that IBO Technology has been profitable in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn't reliably profitable. So we might find other metrics can better explain the share price movements.
It may well be that IBO Technology revenue growth rate of 26% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
We're pleased to report that IBO Technology rewarded shareholders with a total shareholder return of 17% over the last year. So this year's TSR was actually better than the three-year TSR (annualized) of 17%. The improving returns to shareholders suggests the stock is becoming more popular with time. It's always interesting to track share price performance over the longer term. But to understand IBO Technology better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with IBO Technology (including 1 which is concerning) .
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.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.