You can invest in an index fund if you want to make sure your returns approximately match the overall market. In contrast individual stocks will provide a wide range of possible returns, and may fall short. For example, the Luzhou Bank Co., Ltd. (HKG:1983) share price fell 24% in the last year, slightly below the market return of around -18%. Luzhou Bank may have better days ahead, of course; we've only looked at a one year period. Furthermore, it's down 16% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 15% in the same period.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Unfortunately Luzhou Bank reported an EPS drop of 29% for the last year. The share price fall of 24% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. 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. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Luzhou Bank's TSR for the last year was -19%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Having lost 19% over the year , including dividends , Luzhou Bank has generated a return within the same ballpark as the broader market. Unfortunately, last year's performance may indicate unresolved challenges, and the share price has continued to drop, down 16% over the last three months. Most people would be understandably disheartened by this sort of performance, given the lack of a long term history. It's always interesting to track share price performance over the longer term. But to understand Luzhou Bank better, we need to consider many other factors. Take risks, for example - Luzhou Bank has 3 warning signs (and 1 which is potentially serious) we think you should know about.
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.
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.
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.