Unless you borrow money to invest, the potential losses are limited. But if you pick the right business to buy shares in, you can make more than you can lose. Take, for example Samwonsteel Co., Ltd. (KRX:023000). Its share price is already up an impressive 135% in the last twelve months. On top of that, the share price is up 40% in about a quarter. Having said that, the longer term returns aren't so impressive, with stock gaining just 15% in three years.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Samwonsteel actually saw its earnings per share drop 22%.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
Unfortunately Samwonsteel's fell 8.6% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Samwonsteel stock, you should check out this FREE detailed report on its balance sheet.
What about the Total Shareholder Return (TSR)?
We've already covered Samwonsteel's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Samwonsteel shareholders, and that cash payout contributed to why its TSR of 144%, over the last year, is better than the share price return.
A Different Perspective
We're pleased to report that Samwonsteel shareholders have received a total shareholder return of 144% over one year. That's better than the annualised return of 3% over half a decade, implying that the company is doing better recently. 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 Samwonsteel better, we need to consider many other factors. For instance, we've identified 2 warning signs for Samwonsteel (1 is a bit unpleasant) that you should be aware of.
But note: Samwonsteel may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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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