Did You Participate In Any Of Australian Foundation Investment's (ASX:AFI) Respectable 60% Return?

If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Australian Foundation Investment Company Limited (ASX:AFI) share price is up 30% in the last five years, that's less than the market return. Looking at the last year alone, the stock is up 5.3%.

View our latest analysis for Australian Foundation Investment

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Australian Foundation Investment's earnings per share are down 12% per year, despite strong share price performance over five years.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

The revenue growth of 0.4% per year hardly seems impressive. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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. Dive deeper into the earnings by checking this interactive graph of Australian Foundation Investment's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Australian Foundation Investment, it has a TSR of 60% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Australian Foundation Investment shareholders have received a total shareholder return of 9.1% over one year. That's including the dividend. However, the TSR over five years, coming in at 10% per year, is even more impressive. It's always interesting to track share price performance over the longer term. But to understand Australian Foundation Investment better, we need to consider many other factors. Even so, be aware that Australian Foundation Investment is showing 1 warning sign in our investment analysis , you should know about...

Australian Foundation Investment is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider 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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