Stock Analysis

PPK Group (ASX:PPK) delivers shareholders incredible 55% CAGR over 5 years, surging 11% in the last week alone

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ASX:PPK
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For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. To wit, the PPK Group Limited (ASX:PPK) share price has soared 725% over five years. And this is just one example of the epic gains achieved by some long term investors. It's also up 15% in about a month. We love happy stories like this one. The company should be really proud of that performance!

The past week has proven to be lucrative for PPK Group investors, so let's see if fundamentals drove the company's five-year performance.

Check out the opportunities and risks within the AU Chemicals industry.

PPK Group wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last 5 years PPK Group saw its revenue shrink by 43% per year. This is in stark contrast to the strong share price growth of 53%, compound, per year. There can be no doubt this kind of decoupling of revenue growth and share price growth is unusual to see in loss making companies. At the risk of upsetting holders, this does suggest that hope for a better future is playing a significant role in the share price action.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
ASX:PPK Earnings and Revenue Growth December 5th 2022

We like that insiders have been buying shares in the last twelve months. 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 PPK Group's earnings, revenue and cash flow.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between PPK Group's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Its history of dividend payouts mean that PPK Group's TSR of 794% over the last 5 years is better than the share price return.

A Different Perspective

While the broader market gained around 3.8% in the last year, PPK Group shareholders lost 83%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 55%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for PPK Group you should be aware of, and 1 of them doesn't sit too well with us.

PPK Group 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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