Can You Imagine How Jubilant Arad Investment & Industrial Development's (TLV:ARAD) Shareholders Feel About Its 176% Share Price Gain?

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of Arad Investment & Industrial Development Ltd. (TLV:ARAD) stock is up an impressive 176% over the last five years. It's also good to see the share price up 17% over the last quarter. But this could be related to the strong market, which is up 15% in the last three months.

View our latest analysis for Arad Investment & Industrial Development

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Arad Investment & Industrial Development achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is remarkably close to the 23% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Rather, the share price has approximately tracked EPS growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on Arad Investment & Industrial Development's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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, Arad Investment & Industrial Development's TSR for the last 5 years was 192%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Arad Investment & Industrial Development has rewarded shareholders with a total shareholder return of 1.7% in the last twelve months. Of course, that includes the dividend. However, that falls short of the 24% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 2 warning signs for Arad Investment & Industrial Development (1 can't be ignored!) that you should be aware of before investing here.

Of course Arad Investment & Industrial Development 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 IL 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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