SK Innovation (KRX:096770) Has Compensated Shareholders With A Respectable 61% Return On Their Investment

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the SK Innovation Co., Ltd. (KRX:096770) share price is up 34% in the last 5 years, clearly besting the market return of around 26% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 18% , including dividends .

See our latest analysis for SK Innovation

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, SK Innovation actually saw its EPS drop 36% 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.

We doubt the modest 1.7% dividend yield is attracting many buyers to the stock. The revenue growth of 1.3% per year hardly seems impressive. So why is the share price up? It's not immediately obvious to us, but a closer look at the company's progress over time might yield answers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

SK Innovation is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, SK Innovation's TSR for the last 5 years was 61%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

SK Innovation shareholders gained a total return of 18% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 10% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand SK Innovation better, we need to consider many other factors. For instance, we've identified 3 warning signs for SK Innovation (1 doesn't sit too well with us) that you should be aware of.

Of course SK Innovation may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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