Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Hong Leong Bank Berhad (KLSE:HLBANK) shareholders have enjoyed a 29% share price rise over the last half decade, well in excess of the market decline of around 21% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 17% , including dividends .
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Hong Leong Bank Berhad
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.
Over half a decade, Hong Leong Bank Berhad managed to grow its earnings per share at 8.9% a year. This EPS growth is higher than the 5% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Hong Leong Bank Berhad has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Hong Leong Bank Berhad will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Hong Leong Bank Berhad, it has a TSR of 47% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Hong Leong Bank Berhad shareholders have received a total shareholder return of 17% over the last year. Of course, that includes the dividend. That's better than the annualised return of 8% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Hong Leong Bank Berhad you should be aware of, and 1 of them shouldn't be ignored.