What Type Of Returns Would Hutchison Telecommunications Hong Kong Holdings'(HKG:215) Shareholders Have Earned If They Purchased Their SharesThree Years Ago?

As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Hutchison Telecommunications Hong Kong Holdings Limited (HKG:215) shareholders, since the share price is down 62% in the last three years, falling well short of the market decline of around 4.0%.

Check out our latest analysis for Hutchison Telecommunications Hong Kong Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Although the share price is down over three years, Hutchison Telecommunications Hong Kong Holdings actually managed to grow EPS by 98% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We note that the dividend has declined - a likely contributor to the share price drop. This situation was no doubt compounded by the fact revenue is down 9.4% per year over three years.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Hutchison Telecommunications Hong Kong Holdings has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Hutchison Telecommunications Hong Kong Holdings' financial health with this free report on its balance sheet.

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, Hutchison Telecommunications Hong Kong Holdings' TSR for the last 3 years was -45%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Hutchison Telecommunications Hong Kong Holdings shareholders are down 18% for the year (even including dividends), but the market itself is up 10%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Take risks, for example - Hutchison Telecommunications Hong Kong Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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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