Elsoft Research Berhad (KLSE:ELSOFT) Has Gifted Shareholders With A Fantastic 107% Total Return On Their Investment

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Elsoft Research Berhad (KLSE:ELSOFT) shareholders have enjoyed a 71% share price rise over the last half decade, well in excess of the market decline of around 5.4% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 13% , including dividends .

View our latest analysis for Elsoft Research Berhad

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Elsoft Research Berhad actually saw its EPS drop 22% per year.

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.

The revenue reduction of 8.8% per year is not a positive. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Elsoft Research Berhad'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. Dividends have been really beneficial for Elsoft Research Berhad shareholders, and that cash payout contributed to why its TSR of 107%, over the last 5 years, is better than the share price return.

A Different Perspective

It's good to see that Elsoft Research Berhad has rewarded shareholders with a total shareholder return of 13% in the last twelve months. However, the TSR over five years, coming in at 16% per year, is even more impressive. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Elsoft Research Berhad , and understanding them should be part of your investment process.

We will like Elsoft Research Berhad better if we see some big insider buys. While we wait, check out this free list of growing companies 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 MY 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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