By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, HKBN Ltd. (HKG:1310) shareholders have seen the share price rise 27% over three years, well in excess of the market decline (5.4%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 8.0% in the last year , including dividends .
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over the last three years, HKBN failed to grow earnings per share, which fell 24% (annualized).
This means it's unlikely the market is judging the company based on earnings growth. Therefore, we think it's worth considering other metrics as well.
We note that the dividend is higher than it was preciously, so that may have assisted the share price. Sometimes yield-chasing investors will flock to a company if they think the dividend can grow over time. The revenue growth of about 37% per year might also encourage buyers.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free report showing analyst forecasts should help you form a view on HKBN
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, HKBN's TSR for the last 3 years was 49%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
HKBN provided a TSR of 8.0% over the last twelve months. But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 9% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand HKBN better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for HKBN (of which 2 are significant!) you should know about.
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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