Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the Hong Leong Industries Berhad share price has climbed 29% in five years, easily topping the market decline of 3.4% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 19% 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 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.
Hong Leong Industries Berhad's earnings per share are down 2.8% per year, despite strong share price performance over five years.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
In fact, the dividend has increased over time, which is a positive. It could be that the company is reaching maturity and dividend investors are buying for the yield.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Hong Leong Industries Berhad, it has a TSR of 57% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Hong Leong Industries Berhad provided a TSR of 19% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 9% per year over five year. It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 2 warning signs for Hong Leong Industries Berhad that you should be aware of.
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 MY exchanges.
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