If you want to compound your wealth in the stock market, you can do so by purchasing index funds. However, investors can increase their returns by choosing and owning stocks in companies that are outperforming the market. RHI Magnesita NV (LON:RHIM)'s share price is up 59% compared to a year ago, significantly better than the market return of around 2.3% (not including dividends) over the same period. By our standards, this is a solid performance. Unfortunately, long-term returns haven't been that great, with the stock down 11% over the past three years.
Let's look at the underlying fundamentals over the long term and see if they are aligned with shareholder returns.
Check out our latest analysis for RHI Magnesita.
in his essay Graham & Doddsville SuperInvestors Warren Buffett has said that stock prices do not always rationally reflect the value of a company. One imperfect but simple way to consider how the market perception of a company has changed is to compare the change in the earnings per share (EPS) with the share price movement.
Over the last year, RHI Magnesita grew its earnings per share (EPS) by 5.5%. The share price increase of 59% certainly outpaced the EPS growth. This indicates that the market has a more optimistic view of the stock.
You can see below how EPS has changed over time (unveil the exact values by clicking on the image).
We know that RHI Magnesita has improved its earnings over the past three years, but what does the future hold? Check this out if you're thinking of buying or selling RHI Magnesita stock. free Detailed report on balance sheet.
What will happen to the dividend?
It's important to consider not only the share price return but also the total shareholder return for a particular stock. Whereas the price/earnings ratio 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. For RHI Magnesita, the TSR for the past year was 68%. This exceeds the stock return mentioned earlier. And there's no kudos to speculating that dividend payments are the main explanation for the divergence.
different perspective
It's good to see that RHI Magnesita returned a total shareholder return of 68% to shareholders in the over the last twelve months. And this includes dividends. Notably, the five-year annualized TSR loss is 1.3% per year, which compares very unfavorably to the recent share price performance. This makes us a little wary, but the business may have turned its fortunes around. 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. For example, we identified 2 Warning Signs for RHI Magnesita What you need to know.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on UK exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
