If You Had Bought EML Payments (ASX:EML) Stock Five Years Ago, You Could Pocket A 153% Gain Today

The last three months have been tough on EML Payments Limited (ASX:EML) shareholders, who have seen the share price decline a rather worrying 36%. But that scarcely detracts from the really solid long term returns generated by the company over five years. It's fair to say most would be happy with 153% the gain in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. The more important question is whether the stock is too cheap or too expensive today.

Check out our latest analysis for EML Payments

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years of share price growth, EML Payments actually saw its EPS drop 38% per year.

This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

On the other hand, EML Payments' revenue is growing nicely, at a compound rate of 32% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

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

This free interactive report on EML Payments' balance sheet strength 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 EML Payments' 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. We note that EML Payments' TSR, at 156% is higher than its share price return of 153%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

EML Payments shareholders are up 17% for the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 21% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand EML Payments better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for EML Payments you should know about.

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.

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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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