In This Article:
The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. To wit, the Sembcorp Industries Ltd (SGX:U96) share price has flown 167% in the last three years. Most would be happy with that. But it's down 4.0% in the last week. But this could be related to the soft market, with stocks selling off around 1.3% in the last week.
In light of the stock dropping 4.0% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.
See our latest analysis for Sembcorp Industries
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During three years of share price growth, Sembcorp Industries achieved compound earnings per share growth of 57% per year. This EPS growth is higher than the 39% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 10.00 also reflects the negative sentiment around the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Sembcorp Industries has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Sembcorp Industries' TSR for the last 3 years was 189%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Sembcorp Industries provided a TSR of 7.5% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 40% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Sembcorp Industries better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Sembcorp Industries .