I.B.I. Investment House (TLV:IBI) sheds 7.6% this week, as yearly returns fall more in line with earnings growth

Explore I.B.I. Investment House's Fair Values from the Community and select yours

I.B.I. Investment House Ltd (TLV:IBI) shareholders have seen the share price descend 17% over the month. But that does not change the realty that the stock's performance has been terrific, over five years. To be precise, the stock price is 545% higher than it was five years ago, a wonderful performance by any measure. Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. We love happy stories like this one. The company should be really proud of that performance!

While the stock has fallen 7.6% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 the five years of share price growth, I.B.I. Investment House moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.

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

It might be well worthwhile taking a look at our free report on I.B.I. Investment House's earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, I.B.I. Investment House's TSR for the last 5 years was 835%, 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're pleased to report that I.B.I. Investment House shareholders have received a total shareholder return of 110% over one year. That's including the dividend. That gain is better than the annual TSR over five years, which is 56%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for I.B.I. Investment House you should know about.

Of course I.B.I. Investment House 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 Israeli exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.