It is a pleasure to report that the REF Holdings Limited (HKG:1631) is up 36% in the last quarter. But that is small recompense for the exasperating returns over three years. Tragically, the share price declined 70% in that time. So it's good to see it climbing back up. Perhaps the company has turned over a new leaf.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 three years that the share price fell, REF Holdings's earnings per share (EPS) dropped by 4.1% each year. This reduction in EPS is slower than the 33% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 4.27.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
A Different Perspective
REF Holdings shareholders are down 35% for the year, but the broader market is up 8.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 33% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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. For instance, we've identified 4 warning signs for REF Holdings (1 shouldn't be ignored) that you should be aware of.
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 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.
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