When we invest, we’re generally looking for stocks that outperform 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 Financial Group Berhad (KLSE:HLFG) shareholders have enjoyed a 16% share price rise over the last half decade, well in excess of the market return of around 11% (not including dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 12%, 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.
View our latest analysis for Hong Leong Financial Group Berhad
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, Hong Leong Financial Group Berhad managed to grow its earnings per share at 12% a year. The EPS growth is more impressive than the yearly share price gain of 3% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.28.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Hong Leong Financial Group Berhad has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Hong Leong Financial Group Berhad will grow revenue in the future.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Hong Leong Financial Group Berhad’s TSR for the last 5 years was 31%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
It’s good to see that Hong Leong Financial Group Berhad has rewarded shareholders with a total shareholder return of 12% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 6%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before deciding if you like the current share price, check how Hong Leong Financial Group Berhad scores on these 3 valuation metrics.