Introducing RedHill Education, The Stock That Zoomed 238% In The Last Three Years

Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For instance the RedHill Education Limited (ASX:RDH) share price is 238% higher than it was three years ago. How nice for those who held the stock!

See our latest analysis for RedHill Education

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 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 three years of share price growth, RedHill Education achieved compound earnings per share growth of 28% per year. This EPS growth is lower than the 50% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It’s not unusual to see the market ‘re-rate’ a stock, after a few years of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

ASX:RDH Past and Future Earnings, February 22nd 2019
ASX:RDH Past and Future Earnings, February 22nd 2019

We know that RedHill Education has improved its bottom line lately, but is it going to grow revenue? So we recommend checking out this free report showing consensus revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, RedHill Education’s TSR for the last 3 years was 246%, 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

RedHill Education shareholders are up 6.9% for the year (even including dividends). But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 27% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.