Hotai Finance (TWSE:6592) sheds NT$4.5b, company earnings and investor returns have been trending downwards for past year

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Hotai Finance Co., Ltd. (TWSE:6592) share price is down 29% in the last year. That falls noticeably short of the market return of around 38%. The silver lining (for longer term investors) is that the stock is still 12% higher than it was three years ago. The falls have accelerated recently, with the share price down 14% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

If the past week is anything to go by, investor sentiment for Hotai Finance isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Hotai Finance

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

Unhappily, Hotai Finance had to report a 13% decline in EPS over the last year. The share price decline of 29% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Hotai Finance's key metrics by checking this interactive graph of Hotai Finance's earnings, revenue and cash flow.

A Different Perspective

Investors in Hotai Finance had a tough year, with a total loss of 27% (including dividends), against a market gain of about 38%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.4% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Hotai Finance better, we need to consider many other factors. Even so, be aware that Hotai Finance is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

Of course Hotai Finance may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.