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We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. To wit, the Engenco Limited (ASX:EGN) share price has soared 512% 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 14% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 11% in 90 days).
We love happy stories like this one. The company should be really proud of that performance!
View our latest analysis for Engenco
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. 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 five years of share price growth, Engenco 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. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Engenco share price is up 70% in the last three years. In the same period, EPS is up 16% per year. This EPS growth is reasonably close to the 19% average annual increase in the share price (over three years, again). That suggests that the market sentiment around the company hasn't changed much over that time. There's a strong correlation between the share price and EPS.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Engenco's key metrics by checking this interactive graph of Engenco's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Engenco's TSR for the last 5 years was 559%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!