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As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Hotel Grand Central Limited (SGX:H18) shareholders have had that experience, with the share price dropping 19% in three years, versus a market return of about 1.1%. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 7.4% in the same timeframe.
See our latest analysis for Hotel Grand Central
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years that the share price fell, Hotel Grand Central's earnings per share (EPS) dropped by 23% each year. This fall in the EPS is worse than the 6.8% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.
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 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. We note that for Hotel Grand Central the TSR over the last 3 years was -8.1%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Hotel Grand Central shareholders are down 13% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 4.0%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 0.5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Hotel Grand Central better, we need to consider many other factors. Even so, be aware that Hotel Grand Central is showing 3 warning signs in our investment analysis , and 1 of those is concerning...