The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term JSW Steel Limited (NSE:JSWSTEEL) shareholders would be well aware of this, since the stock is up 260% in five years. It's also good to see the share price up 18% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 20% in 90 days).
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the five years of share price growth, JSW Steel moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 JSW Steel the TSR over the last 5 years was 279%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that JSW Steel has rewarded shareholders with a total shareholder return of 42% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 31%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand JSW Steel better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for JSW Steel you should know about.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN 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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