Spectra Systems (LON:SPSC) Has Rewarded Shareholders With An Exceptional 967% Total Return On Their Investment

For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held Spectra Systems Corporation (LON:SPSC) shares for the last five years, while they gained 737%. If that doesn't get you thinking about long term investing, we don't know what will.

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

See our latest analysis for Spectra Systems

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, Spectra Systems 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. We can see that the Spectra Systems share price is up 80% in the last three years. During the same period, EPS grew by 1.5% each year. Notably, the EPS growth has been slower than the annualised share price gain of 22% over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Spectra Systems the TSR over the last 5 years was 967%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Spectra Systems shareholders have received a total shareholder return of 30% over one year. Of course, that includes the dividend. However, the TSR over five years, coming in at 61% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand Spectra Systems better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Spectra Systems 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 GB 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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