Taking the occasional loss comes part and parcel with investing on the stock market. Unfortunately, shareholders of Vixtel Technologies Holdings Limited (HKG:1782) have suffered share price declines over the last year. In that relatively short period, the share price has plunged 54%. To make matters worse, the returns over three years have also been really disappointing (the share price is 32% lower than three years ago). Furthermore, it's down 36% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 16% decline in the broader market, throughout the period.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Unfortunately Vixtel Technologies Holdings reported an EPS drop of 55% for the last year. This change in EPS is remarkably close to the 54% decrease in the share price. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What about the Total Shareholder Return (TSR)?
We've already covered Vixtel Technologies Holdings's share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Vixtel Technologies Holdings's TSR of was a loss of 54% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
Vixtel Technologies Holdings shareholders are down 54% for the year, falling short of the market return. Meanwhile, the broader market slid about 17%, likely weighing on the stock. The three-year loss of 11% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Vixtel Technologies Holdings has 4 warning signs we think you should be aware of.
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 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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