Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Karelia Tobacco Company share price has climbed 24% in five years, easily topping the market return of -59% (ignoring dividends).
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Over half a decade, Karelia Tobacco Company managed to grow its earnings per share at 6.8% a year. This EPS growth is higher than the 4.4% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days. The reasonably low P/E ratio of 11.55 also suggests market apprehension.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Karelia Tobacco Company’s earnings, revenue and cash flow.
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, Karelia Tobacco Company’s TSR for the last 5 years was 42%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We regret to report that Karelia Tobacco Company shareholders are down 5.3% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 2.8%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn’t be so upset, since they would have made 7.3%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Keeping this in mind, a solid next step might be to take a look at Karelia Tobacco Company’s dividend track record. This free interactive graph is a great place to start.
Of course Karelia Tobacco Company may not be the best stock to buy. So you may wish to see this free collection of growth stocks.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GR exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.