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Ideally, your overall portfolio should beat the market average. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Hope Bancorp, Inc. (NASDAQ:HOPE), since the last five years saw the share price fall 26%.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
While the share price declined over five years, Hope Bancorp actually managed to increase EPS by an average of 11% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.
The revenue fall of 0.06% per year for five years is neither good nor terrible. But if the market expected durable top line growth, then that could explain the share price weakness.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Hope Bancorp has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Hope Bancorp in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Hope Bancorp's TSR for the last 5 years was -9.0%, 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
While it's never nice to take a loss, Hope Bancorp shareholders can take comfort that , including dividends,their trailing twelve month loss of 0.6% wasn't as bad as the market loss of around 11%. What is more upsetting is the 1.7% per annum loss investors have suffered over the last half decade. While the losses are slowing we doubt many shareholders are happy with the stock. It's always interesting to track share price performance over the longer term. But to understand Hope Bancorp better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Hope Bancorp , and understanding them should be part of your investment process.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.