While Evolution Mining Limited (ASX:EVN) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 11% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 287% return, over that period. We think it’s more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.
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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During the five years of share price growth, Evolution Mining moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Evolution Mining share price has gained 94% in three years. Meanwhile, EPS is up 50% per year. This EPS growth is higher than the 25% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Evolution Mining has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Evolution Mining the TSR over the last 5 years was 374%, 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
Evolution Mining shareholders gained a total return of 7.1% during the year. But that was short of the market average. On the bright side, the longer term returns (running at about 37% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. If you would like to research Evolution Mining in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will 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.
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 email@example.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.