While shareholders of HD Hyundai Construction Equipment (KRX:267270) are in the black over 5 years, those who bought a week ago aren't so fortunate
When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of HD Hyundai Construction Equipment Co., LTD. (KRX:267270) stock is up an impressive 185% over the last five years. On the other hand, the stock price has retraced 5.6% in the last week.
Since the long term performance has been good but there's been a recent pullback of 5.6%, let's check if the fundamentals match the share price.
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 five years of share price growth, HD Hyundai Construction Equipment moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the HD Hyundai Construction Equipment share price is up 50% in the last three years. During the same period, EPS grew by 0.7% each year. Notably, the EPS growth has been slower than the annualised share price gain of 14% over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that HD Hyundai Construction Equipment 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?
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of HD Hyundai Construction Equipment, it has a TSR of 208% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
HD Hyundai Construction Equipment provided a TSR of 60% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 25% over half a decade It is possible that returns will improve along with the business fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for HD Hyundai Construction Equipment that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South Korean 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.