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Imagine Owning Lippo (HKG:226) And Wondering If The 44% Share Price Slide Is Justified

Simply Wall St

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Lippo Limited (HKG:226) shareholders, since the share price is down 44% in the last three years, falling well short of the market return of around 26%. Unhappily, the share price slid 3.3% in the last week.

See our latest analysis for Lippo

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Lippo moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

We think that the revenue decline over three years, at a rate of 8.0% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

SEHK:226 Income Statement, January 14th 2020

This free interactive report on Lippo's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Lippo's TSR for the last 3 years was -39%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Lippo shareholders gained a total return of 5.9% during the year. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 7.5% per year, over five years. So this might be a sign the business has turned its fortunes around. It's always interesting to track share price performance over the longer term. But to understand Lippo better, we need to consider many other factors. Be aware that Lippo is showing 2 warning signs in our investment analysis , you should know about...

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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 editorial-team@simplywallst.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.