When we invest, we typically look for stocks that outperform the market average. And in our experience, buying the right stocks can significantly increase your wealth.For example, in the long run KAL Group Co., Ltd. (JSE:KAL) shareholders have enjoyed a 27% share price increase over the past five years, significantly outpacing the market's decline of around 1.8% (not including dividends). However, recent returns haven't been as impressive, with the share price returning just 5.3% over the last year, including dividends.
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 KAL Group.
in his essay Graham & Doddsville SuperInvestors Warren Buffett explained 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.
During the five-year period of share price appreciation, KAL Group achieved compounded earnings per share (EPS) growth of 12% per year. The EPS growth is more impressive than the 5% annual share price increase over the same period. As such, the market doesn't seem to be too enthusiastic about this stock lately. This cautious sentiment is reflected in the (fairly low) P/E ratio of 6.57.
The image below shows how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend taking a closer look at its historical growth trends, available here.
What will happen to the dividend?
As well as measuring share price return, investors should also consider total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often much higher than the share price return. Coincidentally, Cal Group's TSR over the past five years was 51%, which is better than the share price return mentioned above. Therefore, the dividend paid by the company is total Shareholder returns.
different perspective
It's good to see that KAL Group shareholders received a total shareholder return of 5.3% over the last year. That includes dividends. However, this falls short of the 9% annual TSR that the company has provided shareholders each year over five years. While potential buyers may understandably feel like they've missed an opportunity, there's always a chance that your business is still firing on all cylinders. 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 Two red flags for KAL Group What you need to know.
We would further like KAL Group if we see some significant insider buying.While you wait, check this out free A list of growing companies with significant recent insider purchasing.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South African exchanges.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, 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.
