When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Elisa Oyj (HEL:ELISA) has fallen short of that second goal, with a share price rise of 41% over five years, which is below the market return. Unfortunately the share price is down 14% in the last year.
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).
Over half a decade, Elisa Oyj managed to grow its earnings per share at 6.0% a year. So the EPS growth rate is rather close to the annualized share price gain of 7% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Elisa Oyj the TSR over the last 5 years was 73%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in Elisa Oyj had a tough year, with a total loss of 10% (including dividends), against a market gain of about 36%. 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 12%, 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. It's always interesting to track share price performance over the longer term. But to understand Elisa Oyj better, we need to consider many other factors. For instance, we've identified 2 warning signs for Elisa Oyj (1 doesn't sit too well with us) that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FI 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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