Stock Analysis

Recent 7.6% pullback isn't enough to hurt long-term Alpha Financial Markets Consulting (LON:AFM) shareholders, they're still up 202% over 5 years

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AIM:AFM
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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Alpha Financial Markets Consulting plc (LON:AFM) shareholders would be well aware of this, since the stock is up 170% in five years. It's also up 17% in about a month. We note that Alpha Financial Markets Consulting reported its financial results recently; luckily, you can catch up on the latest revenue and profit numbers in our company report.

Although Alpha Financial Markets Consulting has shed UK£42m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Alpha Financial Markets Consulting

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Alpha Financial Markets Consulting became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Alpha Financial Markets Consulting share price has gained 111% in three years. In the same period, EPS is up 27% per year. This EPS growth is reasonably close to the 28% average annual increase in the share price (over three years, again). That suggests that the market sentiment around the company hasn't changed much over that time. There's a strong correlation between the share price and EPS.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
AIM:AFM Earnings Per Share Growth December 9th 2022

We know that Alpha Financial Markets Consulting has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Alpha Financial Markets Consulting will grow revenue in the future.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Alpha Financial Markets Consulting the TSR over the last 5 years was 202%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Alpha Financial Markets Consulting has rewarded shareholders with a total shareholder return of 12% in the last twelve months. Of course, that includes the dividend. However, that falls short of the 25% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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. For example, we've discovered 2 warning signs for Alpha Financial Markets Consulting that you should be aware of before investing here.

We will like Alpha Financial Markets Consulting 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 GB exchanges.

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