If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the LVGEM (China) Real Estate Investment Company Limited (HKG:95) share price is up 27% in the last year, clearly besting the market return of around 1.0% (not including dividends). So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 21% in three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year LVGEM (China) Real Estate Investment grew its earnings per share (EPS) by 66%. This EPS growth is significantly higher than the 27% increase in the share price. So it seems like the market has cooled on LVGEM (China) Real Estate Investment, despite the growth. Interesting. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.94.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
This free interactive report on LVGEM (China) Real Estate Investment's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of LVGEM (China) Real Estate Investment, it has a TSR of 30% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's nice to see that LVGEM (China) Real Estate Investment shareholders have gained 30% (in total) over the last year. That's including the dividend. That gain actually surpasses the 8.9% TSR it generated (per year) over three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for LVGEM (China) Real Estate Investment you should be aware of, and 1 of them is concerning.
Of course LVGEM (China) Real Estate Investment may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.