It can certainly be frustrating when a stock does not perform as hoped. But it can difficult to make money in a declining market. The Hong Leong Finance Limited (SGX:S41) is down 12% over three years, but the total shareholder return is -0.9% once you include the dividend. And that total return actually beats the market decline of 15%. The share price has dropped 13% in three months. However, one could argue that the price has been influenced by the general market, which is down 20% in the same timeframe.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Although the share price is down over three years, Hong Leong Finance actually managed to grow EPS by 25% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
It's strange to see such muted share price performance despite sustained growth. Perhaps a clue lies in other metrics. So we'll have to take a look at other metrics to try to understand the price action.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Hong Leong Finance has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
If you are thinking of buying or selling Hong Leong Finance stock, you should check out this FREE detailed 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. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Hong Leong Finance's TSR for the last 3 years was -0.9%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While it's certainly disappointing to see that Hong Leong Finance shares lost 11% throughout the year, that wasn't as bad as the market loss of 18%. Longer term investors wouldn't be so upset, since they would have made 1.8%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Hong Leong Finance better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with Hong Leong Finance (including 1 which is is significant) .
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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 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.
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