By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Hudaco Industries Limited (JSE:HDC), which is up 91%, over three years, soundly beating the market return of 21% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 20% in the last year , including dividends .
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
See our latest analysis for Hudaco Industries
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Hudaco Industries was able to grow its EPS at 193% per year over three years, sending the share price higher. This EPS growth is higher than the 24% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.27.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Hudaco Industries, it has a TSR of 127% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Hudaco Industries shareholders have received a total shareholder return of 20% over the last year. And that does include the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Hudaco Industries better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Hudaco Industries you should be aware of.