When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of SML Isuzu Limited (NSE:SMLISUZU) stock is up an impressive 151% over the last five years. Better yet, the share price has risen 22% in the last week.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, SML Isuzu actually saw its EPS drop 8.2% per year. Essentially, it doesn’t seem likely that investors are focused on EPS. Because earnings per share don’t seem to match up with the share price, we’ll take a look at other metrics instead.
The modest 0.2% dividend yield is unlikely to be propping up the share price. On the other hand, SML Isuzu’s revenue is growing nicely, at a compound rate of 6.6% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, SML Isuzu’s TSR for the last 5 years was 158%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that SML Isuzu shareholders are down 15% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 4.1%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long term shareholders have made money, with a gain of 21% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is SML Isuzu cheap compared to other companies? These 3 valuation measures might help you decide.
We will like SML Isuzu better if we see some big insider buys. While we wait, check out this free list of growing companies 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 IN 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 firstname.lastname@example.org. 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.