Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the BOC Hong Kong (Holdings) Limited (HKG:2388) share price is down 11% in the last year. That contrasts poorly with the market return of 2.4%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 4.6% in three years. The silver lining is that the stock is up 2.9% in about a week.
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.
Even though the BOC Hong Kong (Holdings) share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.
It seems quite likely that the market was expecting higher growth from the stock. But looking to other metrics might better explain the share price change.
We don't see any weakness in the BOC Hong Kong (Holdings)'s dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
BOC Hong Kong (Holdings) is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think BOC Hong Kong (Holdings) will earn in the future (free analyst consensus estimates)
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of BOC Hong Kong (Holdings), it has a TSR of -6.6% for the last year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Investors in BOC Hong Kong (Holdings) had a tough year, with a total loss of 6.6% (including dividends) , against a market gain of about 2.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 6.0% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Keeping this in mind, a solid next step might be to take a look at BOC Hong Kong (Holdings)'s dividend track record. This free interactive graph is a great place to start.
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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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