In This Article:
We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Engenco Limited (ASX:EGN) share price is up a whopping 420% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. In the last week shares have slid back 1.9%.
Check out our latest analysis for Engenco
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
During the last half decade, Engenco became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. 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 Engenco share price is up 247% in the last three years. During the same period, EPS grew by 86% each year. This EPS growth is higher than the 51% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 11.45.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Engenco, it has a TSR of 455% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Engenco shareholders gained a total return of 11% during the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 41% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. If you would like to research Engenco in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.