In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Hong Leong Asia Ltd. (SGX:H22) shareholders have had that experience, with the share price dropping 38% in three years, versus a market decline of about 8.5%.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Hong Leong Asia

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

During the unfortunate three years of share price decline, Hong Leong Asia actually saw its earnings per share (EPS) improve by 13% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

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 decline over three years, at a rate of 9.2% per year, probably had some shareholders looking to sell. And that's not surprising, since it seems unlikely that EPS growth can continue for long in the absence of revenue growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We know that Hong Leong Asia has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Hong Leong Asia

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 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. As it happens, Hong Leong Asia's TSR for the last 3 years was -33%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!