For many investors, the primary goal of stock picking is to generate returns that exceed those of the market as a whole. But it is virtually certain that you will sometimes buy stocks that are below average market returns. Unfortunately, this has been the case for longer Real Estate Investment Trust Link (HKG:823) shareholders, as the stock price has fallen 34% over the past three years, well below the market decline of around 2.3%.
With that in mind, it’s worth seeing whether the company’s underlying fundamentals have been driving long-term performance, or if there are any gaps.
Check out our latest analysis for Link Real Estate Investment Trust
Although the efficient markets hypothesis continues to be taught by some, it has been proven that markets are dynamic systems that are too reactive and that investors are not always rational. An imperfect but reasonable way to gauge changing sentiment around a company is to compare earnings per share (EPS) with the stock price.
In the three years of declining share prices, Link Real Estate Investment Trust’s earnings per share (EPS) fell 30% each year. In comparison, the 13% annual compound decline in the share price is not as severe as the drop in EPS. This suggests that the market retains some optimism about long-term earnings stability, despite past declines in EPS.
The graph below illustrates the evolution of EPS over time (reveal the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases over the past year. Even so, future earnings will be far more important to whether current shareholders are making money. It might be interesting to take a look at our free Link Real Estate Investment Trust earnings, revenue and cash flow report.
What about dividends?
It is important to consider the total shareholder return, as well as the stock price return, for a given stock. TSR is a calculation of return that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of all discounted capital raisings and spinoffs. It’s fair to say that the TSR gives a more complete picture of stocks that pay a dividend. In the case of Link Real Estate Investment Trust, it has a TSR of -25% over the last 3 years. This exceeds the performance of its share price that we mentioned earlier. This is largely the result of its dividend payments!
A different perspective
While it was certainly disappointing to see that Link Real Estate Investment Trust shares lost 8.6% throughout the year, it wasn’t nearly as bad as the market’s 16% loss. Longer-term investors wouldn’t be so upset, as they would have gained 5%, every year, over five years. At best, the past year is only a temporary breach on the path to a brighter future. If you want to research this stock further, the insider buying data is an obvious place to start. You can click here to see who bought shares – and the price they paid.
Link Real Estate Investment Trust isn’t the only stock insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider buying, might be just the ticket.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on HK exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.