We believe investing is smart because history shows that stock markets go higher in the long term. But if you choose that path, you're going to buy some stocks that fall short of the market. For example, the Lindeman Asia Investment Co., Ltd. (KOSDAQ:277070), share price is up over the last year, but its gain of 18% trails the market return. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Lindeman Asia Investment was able to grow EPS by 15% in the last twelve months. This EPS growth is reasonably close to the 18% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. It makes intuitive sense that the share price and EPS would grow at similar rates.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Lindeman Asia Investment's key metrics by checking this interactive graph of Lindeman Asia Investment's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Lindeman Asia Investment's TSR for the last year was 20%, 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
Lindeman Asia Investment shareholders have gained 20% for the year (even including dividends). While it's always nice to make a profit on the stock market, we do note that the TSR was no better than the broader market return of about 49%. The stock trailed the market by 36% in that time, testament to the power of passive investing. But a weak quarter certainly doesn't diminish the longer-term achievements of the business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Lindeman Asia Investment (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on KR 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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