The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by LH Group Limited (HKG:1978) shareholders over the last year, as the share price declined 15%. That's disappointing when you consider the market returned 11%. LH Group may have better days ahead, of course; we've only looked at a one year period. In the last ninety days we've seen the share price slide 16%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 LH Group share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.
It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
We don't see any weakness in the LH Group'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.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for LH Group the TSR over the last year was 6.0%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
LH Group shareholders have gained 6.0% for the year (even including dividends) . While it's always nice to make a profit on the stock market, we do note that the TSR was no better than the broader market return of about 11%. The stock trailed the market by 25% in that time, testament to the power of passive investing. It might be that investors are more concerned about the business lately due to some fundamental change (or else the share price simply got ahead of itself, previously). Keeping this in mind, a solid next step might be to take a look at LH Group's dividend track record. This free interactive graph is a great place to start.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 firstname.lastname@example.org. 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.