By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Hong Leong Finance Limited (SGX:S41), which is up 20%, over three years, soundly beating the market return of 2.9% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 4.9% in the last year, including dividends.

Check out our latest analysis for Hong Leong Finance

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 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.

During three years of share price growth, Hong Leong Finance achieved compound earnings per share growth of 19% per year. This EPS growth is higher than the 6.1% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. We'd venture the lowish P/E ratio of 10.40 also reflects the negative sentiment around the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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, Hong Leong Finance's TSR for the last 3 years was 35%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Hong Leong Finance has rewarded shareholders with a total shareholder return of 4.9% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 3.9% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Importantly, we haven't analysed Hong Leong Finance's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.