I.B.I. Investment House's (TLV:IBI) 58% CAGR outpaced the company's earnings growth over the same five-year period

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. For example, the I.B.I. Investment House Ltd (TLV:IBI) share price is up a whopping 601% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. It's also good to see the share price up 21% over the last quarter. It really delights us to see such great share price performance for investors.

Since it's been a strong week for I.B.I. Investment House shareholders, let's have a look at trend of the longer term fundamentals.

Our free stock report includes 1 warning sign investors should be aware of before investing in I.B.I. Investment House. Read for free now.

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 five years of share price growth, I.B.I. Investment House achieved compound earnings per share (EPS) growth of 20% per year. This EPS growth is lower than the 48% 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.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of I.B.I. Investment House, it has a TSR of 897% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that I.B.I. Investment House shareholders have received a total shareholder return of 124% over the last year. Of course, that includes the dividend. That's better than the annualised return of 58% over half a decade, implying that the company is doing better recently. 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. To that end, you should be aware of the 1 warning sign we've spotted with I.B.I. Investment House .

We will like I.B.I. Investment House better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.