We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. Just think about the savvy investors who held Lycopodium Limited (ASX:LYL) shares for the last five years, while they gained 302%. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 10% in about a quarter.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years of share price growth, Lycopodium moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Lycopodium's key metrics by checking this interactive graph of Lycopodium'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. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Lycopodium the TSR over the last 5 years was 418%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Lycopodium shareholders have received a total shareholder return of 53% over the last year. That's including the dividend. That's better than the annualised return of 39% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Lycopodium better, we need to consider many other factors. For instance, we've identified 1 warning sign for Lycopodium that you should be aware of.
But note: Lycopodium 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 AU exchanges.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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