The main point of investing for the long term is to make money. Better yet, you’d like to see the share price move up more than the market average. Unfortunately for shareholders, while the Highcroft Investments Plc (LON:HCFT) share price is up 10% in the last five years, that’s less than the market return. Over the last twelve months the stock price has risen a very respectable 6.5%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Highcroft Investments’s earnings per share are down 16% per year, despite strong share price performance over five years.
Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. The falling EPS doesn’t correlate with the climbing share price, so it’s worth taking a look at other metrics.
We note that the dividend is higher than it was previously – always nice to see. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 13% per year might also encourage buyers.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Highcroft Investments’s financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Highcroft Investments, it has a TSR of 40% 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
Highcroft Investments shareholders gained a total return of 13% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 7.0% per year over five year. It is possible that returns will improve along with the business fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we’ve discovered 3 warning signs for Highcroft Investments (of which 1 is major) which any shareholder or potential investor should be aware of.
Of course Highcroft Investments may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.