Hampiðjan hf (ICE:HAMP) shareholders notch a 20% CAGR over 5 years, yet earnings have been shrinking

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. Long term Hampiðjan hf. (ICE:HAMP) shareholders would be well aware of this, since the stock is up 135% in five years. And in the last week the share price has popped 10%.

The past week has proven to be lucrative for Hampiðjan hf investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Hampiðjan hf

We don't think that Hampiðjan hf's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last 5 years Hampiðjan hf saw its revenue grow at 18% per year. That's well above most pre-profit companies. So it's not entirely surprising that the share price reflected this performance by increasing at a rate of 19% per year, in that time. This suggests the market has well and truly recognized the progress the business has made. Hampiðjan hf seems like a high growth stock - so growth investors might want to add it to their watchlist.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

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. As it happens, Hampiðjan hf's TSR for the last 5 years was 151%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Hampiðjan hf shareholders are down 21% for the year (even including dividends), but the market itself is up 7.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 20% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 learn about the 5 warning signs we've spotted with Hampiðjan hf (including 2 which don't sit too well with us) .

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Icelandic exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.