Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Investors in HDFC Life Insurance Company Limited (NSE:HDFCLIFE) have tasted that bitter downside in the last year, as the share price dropped 23%. That’s disappointing when you consider the market returned -0.6%. We wouldn’t rush to judgement on HDFC Life Insurance because we don’t have a long term history to look at. It’s down 1.6% in the last seven days.
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 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.
Even though the HDFC Life Insurance share price is down over the year, its EPS actually improved. It’s quite possible that growth expectations may have been unreasonable in the past. The divergence between the EPS and the share price is quite notable, during the year. So it’s well worth checking out some other metrics, too.
With a low yield of 0.4% we doubt that the dividend influences the share price much. HDFC Life Insurance’s revenue is actually up 19% over the last year. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
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. So it makes a lot of sense to check out what analysts think HDFC Life Insurance will earn in the future (free profit forecasts)
HDFC Life Insurance shareholders are down 23% for the year (even including dividends), even worse than the market loss of 0.6%. There’s no doubt that’s a disappointment, but the stock may well have fared better in a stronger market. It’s great to see a nice little 8.8% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it’s the start of a new trend. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
HDFC Life Insurance is not the only stock that insiders are buying. For those who like to find winning investments 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 IN exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at [email protected]. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.