These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more than that. For example, the Prosperous Industrial (Holdings) Limited (HKG:1731) share price is up 72% in the last year, clearly besting the market return of around 3.5% (not including dividends). So that should have shareholders smiling. Prosperous Industrial (Holdings) hasn't been listed for long, so it's still not clear if it is a long term winner.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last year, Prosperous Industrial (Holdings) actually saw its earnings per share drop 62%.
So we don't think that investors are paying too much attention to EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We are skeptical of the suggestion that the 0.8% dividend yield would entice buyers to the stock. Prosperous Industrial (Holdings)'s revenue actually dropped 11% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Prosperous Industrial (Holdings)'s financial health with this free report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Prosperous Industrial (Holdings), it has a TSR of 80% for the last year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Prosperous Industrial (Holdings) shareholders should be happy with the total gain of 80% over the last twelve months , including dividends . A substantial portion of that gain has come in the last three months, with the stock up 73% in that time. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. Before deciding if you like the current share price, check how Prosperous Industrial (Holdings) scores on these 3 valuation metrics.
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.
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 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. Thank you for reading.