Stock Analysis

The five-year decline in earnings might be taking its toll on Unisem (M) Berhad (KLSE:UNISEM) shareholders as stock falls 4.2% over the past week

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KLSE:UNISEM
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When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Unisem (M) Berhad (KLSE:UNISEM) shareholders would be well aware of this, since the stock is up 101% in five years. On the other hand, the stock price has retraced 4.2% in the last week. But note that the broader market is down 1.0% since last week, and this may have impacted Unisem (M) Berhad's share price.

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.

Check out our latest analysis for Unisem (M) Berhad

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years of share price growth, Unisem (M) Berhad actually saw its EPS drop 0.1% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

We doubt the modest 1.9% dividend yield is attracting many buyers to the stock. On the other hand, Unisem (M) Berhad's revenue is growing nicely, at a compound rate of 7.9% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

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

earnings-and-revenue-growth
KLSE:UNISEM Earnings and Revenue Growth December 8th 2023

Take a more thorough look at Unisem (M) Berhad's financial health with this free report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Unisem (M) Berhad the TSR over the last 5 years was 124%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Unisem (M) Berhad shareholders have received a total shareholder return of 19% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 18%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example - Unisem (M) Berhad has 2 warning signs we think you should be aware of.

But note: Unisem (M) Berhad may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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Find out whether Unisem (M) Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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