Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Malaysia Smelting Corporation Berhad (KLSE:MSC) share price is up 16% in the last 5 years, clearly besting the market return of around -13% (ignoring dividends).
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 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 five years of share price growth, Malaysia Smelting Corporation Berhad actually saw its EPS drop 4.5% per year.
With EPS falling, but a modestly increasing share price, it seems that the market was probably too pessimistic about the stock in the past. In the long term, though, it will be hard for the share price rises to continue without improving EPS.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Malaysia Smelting Corporation Berhad’s key metrics by checking this interactive graph of Malaysia Smelting Corporation Berhad’s earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Malaysia Smelting Corporation Berhad’s TSR for the last 5 years was 22%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Malaysia Smelting Corporation Berhad shareholders have received a total shareholder return of 18% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 4.0%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It’s always interesting to track share price performance over the longer term. But to understand Malaysia Smelting Corporation Berhad better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we’ve spotted with Malaysia Smelting Corporation Berhad (including 1 which is is a bit unpleasant) .
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on MY exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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