The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Haitian International Holdings Limited (HKG:1882) share price slid 33% over twelve months. That's disappointing when you consider the market returned 26%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 11% in three years. More recently, the share price has dropped a further 22% in a month. But this could be related to poor market conditions -- stocks are down 9.9% in the same time.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
Our free stock report includes 1 warning sign investors should be aware of before investing in Haitian International Holdings. Read for free now.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 unfortunate twelve months during which the Haitian International Holdings share price fell, it actually saw its earnings per share (EPS) improve by 24%. It could be that the share price was previously over-hyped.
The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.
We don't see any weakness in the Haitian International Holdings' dividend so the steady payout can't really explain the share price drop. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus forecasts
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Haitian International Holdings' TSR for the last 1 year was -31%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Haitian International Holdings shareholders are down 31% for the year (even including dividends), but the market itself is up 26%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Haitian International Holdings , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.