Hong Leong Finance (SGX:S41) Share Prices Have Dropped 11% In The Last Three Years

No-one enjoys it when they lose money on a stock. But it's hard to avoid some disappointing investments when the overall market is down. While the Hong Leong Finance Limited (SGX:S41) share price is down 11% in the last three years, the total return to shareholders (which includes dividends) was 4.2%. That's better than the market which declined 10% over the last three years. It's up 4.3% in the last seven days.

View our latest analysis for Hong Leong Finance

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.

During the unfortunate three years of share price decline, Hong Leong Finance actually saw its earnings per share (EPS) improve by 10% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

We're actually a quite surprised to see the share price down while EPS have grown strongly. Therefore, we should look at some other metrics to try to understand why the market is disappointed.

Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Hong Leong Finance has actually grown its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

This free interactive report on Hong Leong Finance's balance sheet strength is a great place to start, if you want to investigate the stock further.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Hong Leong Finance the TSR over the last 3 years was 4.2%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's certainly disappointing to see that Hong Leong Finance shares lost 3.5% throughout the year, that wasn't as bad as the market loss of 8.4%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 5% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Hong Leong Finance better, we need to consider many other factors. For example, we've discovered 1 warning sign for Hong Leong Finance that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SG 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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