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 Top Education Group Ltd (HKG:1752) share price is down 22% in the last year. That falls noticeably short of the market return of around -5.2%. We wouldn't rush to judgement on Top Education Group because we don't have a long term history to look at. There was little comfort for shareholders in the last week as the price declined a further 4.8%.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 twelve months during which the Top Education Group share price fell, it actually saw its earnings per share (EPS) improve by 58%. Of course, the situation might betray previous over-optimism about growth.
It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's well worth checking out some other metrics, too.
Given the yield is quite low, at 1.3%, we doubt the dividend can shed much light on the share price. Top Education Group managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
The graphic below depicts how earnings and revenue have changed over time (unveil 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.
A Different Perspective
Top Education Group shareholders are down 21% for the year (even including dividends) , even worse than the market loss of 5.2%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline seems to have halted in the most recent three months, with the relatively flat share price suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Top Education Group better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Top Education Group (of which 2 are potentially serious!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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