Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Sanbase Corporation Limited (HKG:8501) shareholders over the last year, as the share price declined 14%. That falls noticeably short of the market return of around -5.0%. Because Sanbase hasn't been listed for many years, the market is still learning about how the business performs. It's down 20% in about a quarter.
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 unfortunate twelve months during which the Sanbase share price fell, it actually saw its earnings per share (EPS) improve by 230%. It could be that the share price was previously over-hyped. It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.
Sanbase managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
If you are thinking of buying or selling Sanbase stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Sanbase shareholders are down 13% for the year (even including dividends), even worse than the market loss of 5.0%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. It's worth noting that the last three months did the real damage, with a 20% decline. So it seems like some holders have been dumping the stock of late - and that's not bullish. Is Sanbase cheap compared to other companies? These 3 valuation measures might help you decide.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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 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. Thank you for reading.