By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, HKBN Ltd. (HKG:1310) shareholders have seen the share price rise 60% over three years, well in excess of the market return (14%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 16% in the last year , including dividends .
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
During the three years of share price growth, HKBN actually saw its earnings per share (EPS) drop 7.5% per year.
So we doubt that the market is looking to EPS for its main judge of the company's value. Given this situation, it makes sense to look at other metrics too.
We note that the dividend is higher than it was preciously, so that may have assisted the share price. Sometimes yield-chasing investors will flock to a company if they think the dividend can grow over time. The revenue growth of about 19% per year might also encourage buyers.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for HKBN in this interactive graph of future profit estimates.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for HKBN the TSR over the last 3 years was 86%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that HKBN shareholders have gained 16% (in total) over the last year. And yes, that does include the dividend. That falls short of the 23% it has made, for shareholders, each year, over three years. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.