Those who invested in Sime Darby Berhad (KLSE:SIME) a year ago are up 18%

We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. Over the last year the Sime Darby Berhad (KLSE:SIME) share price is up 12%, but that's less than the broader market return. Longer term, the stock is up 11% in three years.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Sime Darby Berhad

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last year, Sime Darby Berhad actually saw its earnings per share drop 6.2%.

So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

We haven't seen Sime Darby Berhad increase dividend payments yet, so the yield probably hasn't helped drive the share higher. Rather, we'd posit that the revenue increase of 39% might be more meaningful. After all, it's not necessarily a bad thing if a business sacrifices profits today in pursuit of profit tomorrow (metaphorically speaking).

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Sime Darby Berhad is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Sime Darby Berhad in this interactive graph of future profit estimates.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Sime Darby Berhad, it has a TSR of 18% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Sime Darby Berhad's TSR for the year was broadly in line with the market average, at 18%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 8%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Sime Darby Berhad you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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