Kesko Oyj's (HEL:KESKOB) 24% CAGR outpaced the company's earnings growth over the same five-year period

By
Simply Wall St
Published
March 16, 2022
HLSE:KESKOB
Source: Shutterstock

It hasn't been the best quarter for Kesko Oyj (HEL:KESKOB) shareholders, since the share price has fallen 16% in that time. But in stark contrast, the returns over the last half decade have impressed. It's fair to say most would be happy with 139% the gain in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Only time will tell if there is still too much optimism currently reflected in the share price.

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

See our latest analysis for Kesko Oyj

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. 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).

Over half a decade, Kesko Oyj managed to grow its earnings per share at 42% a year. The EPS growth is more impressive than the yearly share price gain of 19% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
HLSE:KESKOB Earnings Per Share Growth March 16th 2022

We know that Kesko Oyj has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Kesko Oyj stock, you should check out this FREE detailed report on its balance sheet.

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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Kesko Oyj's TSR for the last 5 years was 192%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Kesko Oyj has rewarded shareholders with a total shareholder return of 14% in the last twelve months. Of course, that includes the dividend. Having said that, the five-year TSR of 24% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for Kesko Oyj (1 shouldn't be ignored) that you should be aware of.

But note: Kesko Oyj may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FI exchanges.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.