Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example the Tao Heung Holdings Limited (HKG:573) share price dropped 68% over five years. That's an unpleasant experience for long term holders.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 five years over which the share price declined, Tao Heung Holdings's earnings per share (EPS) dropped by 12% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 20% per year, over the period. This implies that the market was previously too optimistic about the stock. The less favorable sentiment is reflected in its current P/E ratio of 9.64.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of Tao Heung Holdings's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Tao Heung Holdings's TSR for the last 5 years was -55%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Tao Heung Holdings has rewarded shareholders with a total shareholder return of 7.8% in the last twelve months. And that does include the dividend. There's no doubt those recent returns are much better than the TSR loss of 15% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Tao Heung Holdings by clicking this link.
Tao Heung Holdings is not the only stock that insiders are buying. 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.
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.