It's possible to achieve returns close to the market-weighted average return by buying an index fund. A talented investor can beat the market with a diversified portfolio, but even then, some stocks will under-perform. While the BOC Hong Kong (Holdings) Limited (HKG:2388) share price is down 34% over half a decade, the total return to shareholders (which includes dividends) was -17%. That's better than the market which declined 25% over the same time. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 19% in the same timeframe.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See our latest analysis for BOC Hong Kong (Holdings)

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.

Looking back five years, both BOC Hong Kong (Holdings)'s share price and EPS declined; the latter at a rate of 3.0% per year. This reduction in EPS is less than the 8% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 10.81.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into BOC Hong Kong (Holdings)'s key metrics by checking this interactive graph of BOC Hong Kong (Holdings)'s earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, BOC Hong Kong (Holdings)'s TSR for the last 5 years was -17%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that BOC Hong Kong (Holdings) has rewarded shareholders with a total shareholder return of 1.7% in the last twelve months. That's including the dividend. That certainly beats the loss of about 3% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 1 warning sign for BOC Hong Kong (Holdings) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK 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.