HC Surgical Specialists (Catalist:1B1) investors are up 20% in the past week, but earnings have declined over the last three years

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, HC Surgical Specialists Limited (Catalist:1B1) shareholders have seen the share price rise 50% over three years, well in excess of the market return (5.7%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 8.1% , including dividends .

Since the stock has added S$12m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for HC Surgical Specialists

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.

Over the last three years, HC Surgical Specialists failed to grow earnings per share, which fell 19% (annualized).

So we doubt that the market is looking to EPS for its main judge of the company's value. Therefore, we think it's worth considering other metrics as well.

We doubt the dividend payments explain the share price rise, since we don't see any improvement in that regard. But it's far more plausible that the revenue growth of 3.5% per year is viewed as evidence that HC Surgical Specialists is growing. It could be that investors are content with the revenue growth on the basis that the company isn't really focussed on profits just yet. And that might explain the higher price.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

This free interactive report on HC Surgical Specialists' balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for HC Surgical Specialists the TSR over the last 3 years was 81%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that HC Surgical Specialists shareholders have received a total shareholder return of 8.1% over the last year. That's including the dividend. Notably the five-year annualised TSR loss of 1.4% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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 5 warning signs with HC Surgical Specialists (at least 1 which is concerning) , and understanding them should be part of your investment process.

But note: HC Surgical Specialists may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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