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Those Who Purchased Hong Lai Huat Group (SGX:CTO) Shares Five Years Ago Have A 64% Loss To Show For It

Generally speaking long term investing is the way to go. But no-one is immune from buying too high. To wit, the Hong Lai Huat Group Limited (SGX:CTO) share price managed to fall 64% over five long years. That's not a lot of fun for true believers. And some of the more recent buyers are probably worried, too, with the stock falling 26% in the last year. More recently, the share price has dropped a further 8.4% in a month.

View our latest analysis for Hong Lai Huat Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years of share price growth, Hong Lai Huat Group moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

In contrast to the share price, revenue has actually increased by 36% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

SGX:CTO Income Statement, February 21st 2020
SGX:CTO Income Statement, February 21st 2020

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Hong Lai Huat Group's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Hong Lai Huat Group, it has a TSR of -61% for the last 5 years. 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

Hong Lai Huat Group shareholders are down 24% for the year (even including dividends) , but the market itself is up 1.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 17% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Hong Lai Huat Group you should know about.

Hong Lai Huat Group 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 SG exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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.

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