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Some Wharf Real Estate Investment (HKG:1997) Shareholders Are Down 11%

Simply Wall St

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the Wharf Real Estate Investment Company Limited (HKG:1997) share price is down 11% in the last year. That contrasts poorly with the market return of 4.7%. Because Wharf Real Estate Investment hasn't been listed for many years, the market is still learning about how the business performs. On top of that, the share price is down 5.2% in the last week.

See our latest analysis for Wharf Real Estate Investment

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Unhappily, Wharf Real Estate Investment had to report a 34% decline in EPS over the last year. This fall in the EPS is significantly worse than the 11% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

SEHK:1997 Past and Future Earnings, November 13th 2019

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Wharf Real Estate Investment'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). 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. As it happens, Wharf Real Estate Investment's TSR for the last year was -6.7%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Given that the market gained 4.7% in the last year, Wharf Real Estate Investment shareholders might be miffed that they lost 6.7% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 2.0% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

There are plenty of other companies that have insiders buying up shares. You probably do 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 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 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. Thank you for reading.