Did You Participate In Any Of CMG Pharmaceutical's (KOSDAQ:058820) Fantastic 203% Return ?

It's been a soft week for CMG Pharmaceutical Co., Ltd. (KOSDAQ:058820) shares, which are down 13%. But that doesn't change the fact that shareholders have received really good returns over the last five years. In fact, the share price is 162% higher today. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.

View our latest analysis for CMG Pharmaceutical

There is no denying that markets are sometimes efficient, but prices do not always reflect 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 five years of share price growth, CMG Pharmaceutical moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. In fact, the CMG Pharmaceutical stock price is 13% lower in the last three years. Meanwhile, EPS is up 53% per year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -5% a year for three years.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into CMG Pharmaceutical's key metrics by checking this interactive graph of CMG Pharmaceutical's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between CMG Pharmaceutical's total shareholder return (TSR) and its share price change, which we've covered above. 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. We note that CMG Pharmaceutical's TSR, at 203% is higher than its share price return of 162%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

CMG Pharmaceutical shareholders are up 27% for the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 25% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Take risks, for example - CMG Pharmaceutical has 2 warning signs we think you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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