The one-year decline in earnings might be taking its toll on Hyundai G.F. Holdings (KRX:005440) shareholders as stock falls 8.7% over the past week

Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Hyundai G.F. Holdings Co., Ltd. (KRX:005440) share price is up 68% in the last 1 year, clearly besting the market return of around 29% (not including dividends). So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 16% in the last three years.

Since the long term performance has been good but there’s been a recent pullback of 8.7%, let’s check if the fundamentals match the share price.

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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 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 the last year, Hyundai G.F. Holdings actually saw its earnings per share drop 74%.

Given the share price gain, we doubt the market is measuring progress with EPS. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

We think that the revenue growth of 70% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how Hyundai G.F. Holdings has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Hyundai G.F. Holdings’ financial health with this free report on its balance sheet.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Hyundai G.F. Holdings the TSR over the last 1 year was 75%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It’s good to see that Hyundai G.F. Holdings has rewarded shareholders with a total shareholder return of 75% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 19% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Case in point: We’ve spotted 4 warning signs for Hyundai G.F. Holdings you should be aware of, and 1 of them can’t be ignored.

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.