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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. Unfortunately the Microware Group Limited (HKG:1985) share price slid 20% over twelve months. That's well bellow the market return of -6.6%. Microware Group hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The silver lining is that the stock is up 1.2% in about a week.
Check out our latest analysis for Microware Group
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 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.
Unhappily, Microware Group had to report a 4.0% decline in EPS over the last year. The share price decline of 20% is actually more than the EPS drop. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The P/E ratio of 8.83 also points to the negative market sentiment.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Microware Group's earnings, revenue and cash flow.
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, Microware Group's TSR for the last year was -11%, 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
We doubt Microware Group shareholders are happy with the loss of 11% over twelve months (even including dividends) . That falls short of the market, which lost 6.6%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock down 9.6% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Microware Group by clicking this link.