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St Barbara Limited (ASX:SBM) shareholders might be concerned after seeing the share price drop 27% in the last quarter. But that doesn't undermine the fantastic longer term performance (measured over five years). In that time, the share price has soared some 1129% higher! Arguably, the recent fall is to be expected after such a strong rise. But the real question is whether the business fundamentals can improve over the long term.
Anyone who held for that rewarding ride would probably be keen to talk about it.
View our latest analysis for St Barbara
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 five years of share price growth, St Barbara moved from a loss to profitability. 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 St Barbara share price is up 72% in the last three years. In the same period, EPS is up 22% per year. That makes the EPS growth rather close to the annualized share price gain of 20% over the same period. That suggests that the market sentiment around the company hasn't changed much over that time. Arguably the share price is reflecting the earnings per share.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into St Barbara's key metrics by checking this interactive graph of St Barbara's earnings, revenue and cash flow.
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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for St Barbara the TSR over the last 5 years was 1205%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!