Did The Underlying Business Drive Lynas Rare Earths' (ASX:LYC) Lovely 726% Share Price Gain?

It hasn't been the best quarter for Lynas Rare Earths Limited (ASX:LYC) shareholders, since the share price has fallen 14% in that time. But over five years returns have been remarkably great. Indeed, the share price is up a whopping 726% in that time. So it might be that some shareholders are taking profits after good performance. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price.

It really delights us to see such great share price performance for investors.

Check out our latest analysis for Lynas Rare Earths

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During the last half decade, Lynas Rare Earths became profitable. 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 image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on Lynas Rare Earths' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Lynas Rare Earths' total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Lynas Rare Earths hasn't been paying dividends, but its TSR of 737% exceeds its share price return of 726%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

We're pleased to report that Lynas Rare Earths shareholders have received a total shareholder return of 184% over one year. That gain is better than the annual TSR over five years, which is 53%. Therefore it seems like sentiment around the company has been positive lately. 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 Lynas Rare Earths better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Lynas Rare Earths you should know about.

We will like Lynas Rare Earths better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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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