Despite the downward trend in earnings at Ravad (TLV:RAVD) the stock pops 10%, bringing three-year gains to 47%

By
Simply Wall St
Published
May 09, 2022
TASE:RAVD
Source: Shutterstock

Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the Ravad Ltd (TLV:RAVD) share price return of 40% over three years lags the market return in the same period. On the other hand, the more recent gain of 34% over a year is certainly pleasing.

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

View our latest analysis for Ravad

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

During three years of share price growth, Ravad moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
TASE:RAVD Earnings Per Share Growth May 9th 2022

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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. Dive deeper into the earnings by checking this interactive graph of Ravad'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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Ravad the TSR over the last 3 years was 47%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Ravad shareholders have received a total shareholder return of 34% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 6%. 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 for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with Ravad (at least 3 which can't be ignored) , and understanding them should be part of your investment process.

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 IL exchanges.

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