Stock Analysis

Shareholders Of SeaLink Travel Group (ASX:SLK) Must Be Happy With Their 113% Total Return

ASX:KLS
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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. To wit, the SeaLink Travel Group share price has climbed 78% in five years, easily topping the market return of 35% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 61% in the last year , including dividends .

View our latest analysis for SeaLink Travel Group

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. 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.

SeaLink Travel Group's earnings per share are down 11% per year, despite strong share price performance over five years. This was, in part, due to extraordinary items impacting earning in the last twelve months.

Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 1.6% dividend yield is attracting many buyers to the stock. On the other hand, SeaLink Travel Group's revenue is growing nicely, at a compound rate of 25% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
ASX:SLK Earnings and Revenue Growth January 26th 2021

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling SeaLink Travel Group stock, you should check out this free report showing analyst profit forecasts.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of SeaLink Travel Group, it has a TSR of 113% 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

It's good to see that SeaLink Travel Group has rewarded shareholders with a total shareholder return of 61% in the last twelve months. That's including the dividend. That's better than the annualised return of 16% 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 SeaLink Travel Group better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for SeaLink Travel Group you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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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