Farmsco (KRX:036580) shareholders might be concerned after seeing the share price drop 11% in the last month. But that doesn't change the reality that over twelve months the stock has done really well. Looking at the full year, the company has easily bested an index fund by gaining 95%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the last year Farmsco grew its earnings per share, moving from a loss to a profit.
When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.
We doubt the modest 0.7% dividend yield is doing much to support the share price. We think that the revenue growth of 15% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.
The graphic below depicts how earnings and revenue have changed over time (unveil 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Farmsco the TSR over the last year was 100%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Farmsco shareholders have received a total shareholder return of 100% over the last year. And that does include the dividend. There's no doubt those recent returns are much better than the TSR loss of 7% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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. For instance, we've identified 3 warning signs for Farmsco (1 is a bit concerning) that you should be aware of.
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 KR exchanges.
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