If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) share price is 53% higher than it was five years ago, which is more than the market average. In comparison, the share price is down 2.2% in a year.
Compañía de Minas BuenaventuraA isn’t a profitable company, so it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last 5 years Compañía de Minas BuenaventuraA saw its revenue grow at 1.4% per year. That’s not a very high growth rate considering the bottom line. While it’s hard to say just how much value the company added over five years, the annualised share price gain of 8.8% seems about right. The business could be one worth watching but we generally prefer faster revenue growth.
The graphic below depicts how revenue has changed over time.
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Compañía de Minas BuenaventuraA’s TSR for the last 5 years was 56%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Compañía de Minas BuenaventuraA shareholders are down 1.7% for the year (even including dividends) , but the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 9.3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
But note: Compañía de Minas BuenaventuraA may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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