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Passive investing in index funds can generate returns that roughly match the overall market. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Objective Corporation Limited (ASX:OCL) share price is 45% higher than it was five years ago, which is more than the market average. It’s fair to say the stock has continued its long term trend in the last year, over which it has risen 24%.

Since the long term performance has been good but there’s been a recent pullback of 4.5%, let’s check if the fundamentals match the share price.

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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 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 five years of share price growth, Objective achieved compound earnings per share (EPS) growth of 26% per year. This EPS growth is higher than the 8% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. Of course, with a P/E ratio of 50.83, the market remains optimistic.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Objective’s TSR for the last 5 years was 52%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

It’s good to see that Objective has rewarded shareholders with a total shareholder return of 26% in the last twelve months. And that does include the dividend. That’s better than the annualised return of 9% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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

Investors in South Korea looking to hedge their big US stock holdings or play their next wager are embracing a new type of trades: leveraged VIX bets.

With about $130 million in inflows this year, the 2x Long VIX Futures exchange-traded fund — which seeks twice the returns of a gauge tracking Cboe Volatility Index futures — has become one of the favorite US-listed ETFs and was the seventh most bought in July, according to data from the Korea Securities Depository. The additions represent about one-fifth of the ETF’s global inflows.

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Chinese tech giants have paused plans to issue stablecoins in Hong Kong, after Beijing raised concerns about the rise of currencies controlled by the private sector.

Companies including Alibaba-backed Ant Group and ecommerce group JD.com had said over the summer they would participate in Hong Kong’s pilot stablecoin programme or issue virtual asset-backed products, such as tokenised bonds.

But they have since put their stablecoin ambitions on hold after receiving instructions from Chinese regulators, including the People’s Bank of China (PBoC) and Cyberspace Administration of China (CAC), not to move ahead, according to multiple people familiar with the situation.

PBoC officials advised against participating in the initial stablecoin rollout over concerns about allowing tech groups and brokerages to issue any type of currency, five people said.

One person with knowledge of the central bank’s briefings to the tech groups said the issuance of privately run stablecoins was also seen as a challenge to the PBoC’s digital currency project, the e-CNY.

“The real regulatory concern is, who has the ultimate right of coinage — the central bank or any private companies on the market?” said a different person.

Stablecoins are digital tokens pegged to fiat currencies such as the US dollar and are a cornerstone of crypto trading.

The pushback from Chinese authorities underscores how regulators around the world are keen to respond to the rise of stablecoins, particularly after the Trump administration championed them as a pillar of mainstream finance and a vehicle to project the US dollar’s dominance.

The European Central Bank has said widespread adoption of dollar stablecoins could hinder its ability to control monetary policy.

The Hong Kong Monetary Authority, the territory’s de facto central bank, in August started accepting applications for stablecoin issuers, establishing itself as a testing ground for the mainland.

In China, interest in the Hong Kong programme swelled over the summer, with some officials suggesting that renminbi-denominated stablecoins would potentially boost the yuan’s international use. 

Zhu Guangyao, former vice-minister of finance in China, argued in June that “the strategic purpose behind the US promotion of stablecoins is to preserve dollar supremacy” and it is crucial for China to respond to that financial challenge with the development of a stablecoin pegged to renminbi.

“We should fully leverage the pilot programmes in Hong Kong,” Zhu said at a forum in Beijing in June. “The renminbi stablecoin must be integrated into the overall design of the national financial strategy.” 

But two people with knowledge of the tech groups’ plans said financial regulators were taking a more cautious approach following a speech by former PBoC governor Zhou Xiaochuan in late August.

At a closed door financial forum in Beijing in July, Zhou urged a thorough evaluation of stablecoins and potential systemic risks they posed. 

“We need to be vigilant against the risk of stablecoins being excessively used for asset speculation, as misdirection could trigger fraud and instability in the financial system,” Zhou said at the China Finance 40 Forum, according to an article later published by the state-backed think-tank.

Zhou urged a “careful assessment of the true demand of tokenisation as a technological foundation”.

He added: “Although many believe stablecoins will reshape the payments system, in reality, there is little room to cut costs in the current system, particularly in retail payments.”

PBoC declined to comment. HKMA said it does not comment on market rumours. CAC, Ant and JD.com did not respond to requests for comment.

The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers So we wouldn’t blame long term Amotiv Limited (ASX:AOV) shareholders for doubting their decision to hold, with the stock down 33% over a half decade.

Now let’s have a look at the company’s fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

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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 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).

In the last half decade Amotiv saw its share price fall as its EPS declined below zero. This was, in part, due to extraordinary items impacting earnings. At present it’s hard to make valid comparisons between EPS and the share price. However, we can say we’d expect to see a falling share price in this scenario.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It’s good to see that there was some significant insider buying in the last three months. That’s a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of Amotiv’s earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Amotiv’s TSR for the last 5 years was -16%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

While the broader market gained around 12% in the last year, Amotiv shareholders lost 8.3% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example – Amotiv has 2 warning signs we think you should be aware of.

Amotiv is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

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