The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. To wit, the FinVolution Group (NYSE:FINV) share price is 72% higher than it was a year ago, much better than the market return of around 22% (not including dividends) in the same period. That’s a solid performance by our standards! In contrast, the longer term returns are negative, since the share price is 51% lower than it was three years ago.
View our latest analysis for FinVolution Group
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year, FinVolution Group actually saw its earnings per share drop 31%.
So we don’t think that investors are paying too much attention to 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 16% could have some investors interested. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how FinVolution Group has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling FinVolution Group stock, you should check out this FREE detailed report on its balance sheet.
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. As it happens, FinVolution Group’s TSR for the last year was 83%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that FinVolution Group shareholders have gained 83% (in total) over the last year. That includes the value of the dividend. This recent result is much better than the 13% drop suffered by shareholders each year (on average) over the last three. It could well be that the business has turned around — or else regained the confidence of investors. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with FinVolution Group (at least 1 which is concerning) , and understanding them should be part of your investment process.
Of course FinVolution Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.
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