Stock Analysis

EKF Diagnostics Holdings (LON:EKF) Has Rewarded Shareholders With An Exceptional 804% Total Return On Their Investment

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AIM:EKF
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We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held EKF Diagnostics Holdings plc (LON:EKF) shares for the last five years, while they gained 629%. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 19% in about a quarter.

It really delights us to see such great share price performance for investors.

View our latest analysis for EKF Diagnostics Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 five years of share price growth, EKF Diagnostics Holdings achieved compound earnings per share (EPS) growth of 6.2% per year. This EPS growth is lower than the 49% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 53.35.

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

earnings-per-share-growth
AIM:EKF Earnings Per Share Growth February 17th 2021

It is of course excellent to see how EKF Diagnostics Holdings has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at EKF Diagnostics Holdings' financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of EKF Diagnostics Holdings, it has a TSR of 804% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that EKF Diagnostics Holdings shareholders have received a total shareholder return of 130% over one year. And that does include the dividend. That's better than the annualised return of 55% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand EKF Diagnostics Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with EKF Diagnostics Holdings (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

But note: EKF Diagnostics Holdings 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 GB exchanges.

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