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Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the AIREA plc (LON:AIEA) share price has soared 558% over five years. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 11% in about a quarter. But this could be related to the strong market, which is up 8.1% in the last three months.
It really delights us to see such great share price performance for investors.
See our latest analysis for AIREA
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last half decade, AIREA became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the AIREA share price is up 217% in the last three years. In the same period, EPS is up 83% per year. This EPS growth is higher than the 47% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 8.21.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on AIREA's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, AIREA's TSR for the last 5 years was 793%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!