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If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Hong Leong Asia Ltd. (SGX:H22) share price is up 34% in the last 1 year, clearly besting the market return of around 15% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Zooming out, the stock is actually down 0.6% in the last three years.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for Hong Leong Asia
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 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 last year Hong Leong Asia grew its earnings per share (EPS) by 94%. It's fair to say that the share price gain of 34% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Hong Leong Asia as it was before. This could be an opportunity. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.21.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Hong Leong Asia has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
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 Hong Leong Asia the TSR over the last 1 year was 40%, 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
It's nice to see that Hong Leong Asia shareholders have received a total shareholder return of 40% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 7% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you would like to research Hong Leong Asia in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.