Despite shrinking by ₩572b in the past week, Korean AirlinesLtd (KRX:003490) shareholders are still up 139% over 5 years

The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Korean Airlines Co.,Ltd. (KRX:003490) share price is up 49% in the last five years, that's less than the market return. However, if you include the dividends then the return is market beating. The last year hasn't been great either, with the stock up just 2.5%.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

See our latest analysis for Korean AirlinesLtd

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, Korean AirlinesLtd became profitable. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the Korean AirlinesLtd stock price is 25% lower in the last three years. In the same period, EPS is up 27% per year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -9% per year.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Korean AirlinesLtd has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Korean AirlinesLtd, it has a TSR of 139% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Korean AirlinesLtd shareholders have received a total shareholder return of 5.8% over the last year. And that does include the dividend. However, that falls short of the 19% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 1 warning sign for Korean AirlinesLtd that you should be aware of.

We will like Korean AirlinesLtd better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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

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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.