In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Vincent Medical Holdings Limited (HKG:1612) shareholders, since the share price is down 44% in the last three years, falling well short of the market return of around 22%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Vincent Medical Holdings saw its EPS decline at a compound rate of 23% per year, over the last three years. In comparison the 17% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.
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.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Vincent Medical Holdings the TSR over the last 3 years was -40%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Vincent Medical Holdings shareholders are up 0.8% for the year (even including dividends) . While you don't go broke making a profit, this return was actually lower than the average market return of about 6.1%. The silver lining is that the recent rise is far preferable to the annual loss of 16% that shareholders have suffered over the last three years. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Vincent Medical Holdings better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Vincent Medical Holdings (of which 1 is a bit unpleasant!) you should know about.
Of course Vincent Medical Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.
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.