Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in PPDAI Group Inc. (NYSE:PPDF) have tasted that bitter downside in the last year, as the share price dropped 15%. That falls noticeably short of the market return of around 6.1%. Because PPDAI Group hasn't been listed for many years, the market is still learning about how the business performs. The share price has dropped 27% in three months.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
PPDAI Group managed to increase earnings per share from a loss to a profit, over the last 12 months. We're surprised that the share price is lower given that improvement. If the improved profitability is a sign of things to come, then right now may prove the perfect time to pop this stock on your watchlist.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that PPDAI Group has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of PPDAI Group, it has a TSR of -12% for the last year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While PPDAI Group shareholders are down 12% for the year (even including dividends), the market itself is up 6.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's worth noting that the last three months did the real damage, with a 27% decline. So it seems like some holders have been dumping the stock of late - and that's not bullish. Before forming an opinion on PPDAI Group you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.