If you love investing in stocks you’re bound to buy some losers. Long term HSBC Holdings plc (LON:HSBA) shareholders know that all too well, since the share price is down considerably over three years. Regrettably, they have had to cope with a 59% drop in the share price over that period. And over the last year the share price fell 50%, so we doubt many shareholders are delighted. Furthermore, it’s down 16% in about a quarter. That’s not much fun for holders.
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 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).
Over the three years that the share price declined, HSBC Holdings’ earnings per share (EPS) dropped significantly, falling to a loss. Extraordinary items contributed to this situation. Since the company has fallen to a loss making position, it’s hard to compare the change in EPS with the share price change. However, we can say we’d expect to see a falling share price in this scenario.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on HSBC Holdings’ earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between HSBC Holdings’ total shareholder return (TSR) and its share price change, which we’ve covered above. 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. HSBC Holdings’ TSR of was a loss of 54% for the 3 years. That wasn’t as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market lost about 13% in the twelve months, HSBC Holdings shareholders did even worse, losing 50%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. It’s always interesting to track share price performance over the longer term. But to understand HSBC Holdings better, we need to consider many other factors. For example, we’ve discovered 1 warning sign for HSBC Holdings that you should be aware of before investing here.
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 GB exchanges.
This article by Simply Wall St is general in nature. 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.