The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Lenovo Group Limited (HKG:992) share price is up 65% in the last year, clearly besting than the market return of around -8.6% (not including dividends). So that should have shareholders smiling. Having said that, the longer term returns aren’t so impressive, with stock gaining just 5.6% in three years.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 last year Lenovo Group grew its earnings per share, moving from a loss to a profit. When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.
However the year on year revenue growth of 13% would help. Many businesses do go through a faze where they have to forgo some profits to drive business development, and sometimes its for the best.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Lenovo Group is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts
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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Lenovo Group the TSR over the last year was 75%, 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 good to see that Lenovo Group has rewarded shareholders with a total shareholder return of 75% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 0.7% per year), it would seem that the stock’s performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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 HK 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.