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One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, I.T Limited (HKG:999) shareholders have seen the share price rise 98% over three years, well in excess of the market return (32%, not including dividends).
Check out our latest analysis for I.T
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During three years of share price growth, I.T achieved compound earnings per share growth of 29% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 26% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Quite to the contrary, the share price has arguably reflected the EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that I.T has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, I.T's TSR for the last 3 years was 120%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that I.T shareholders are down 2.5% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 1.3%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 17%, 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. Before forming an opinion on I.T you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.