Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in iDreamSky Technology Holdings Limited (HKG:1119) have tasted that bitter downside in the last year, as the share price dropped 24%. That contrasts poorly with the market return of 10%. iDreamSky Technology Holdings may have better days ahead, of course; we've only looked at a one year period. There was little comfort for shareholders in the last week as the price declined a further 1.5%.
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).
Even though the iDreamSky Technology Holdings share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.
The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.
iDreamSky Technology Holdings managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
While iDreamSky Technology Holdings shareholders are down 24% for the year, the market itself is up 10%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's great to see a nice little 8.0% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. 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.
But note: iDreamSky Technology Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.