Koninklijke BAM Groep (AMS:BAMNB) pulls back 6.0% this week, but still delivers shareholders massive 53% CAGR over 5 years

Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the Koninklijke BAM Groep nv (AMS:BAMNB) share price. It's 606% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. But it's down 6.0% in the last week. We love happy stories like this one. The company should be really proud of that performance!

In light of the stock dropping 6.0% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

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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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years of share price growth, Koninklijke BAM Groep moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. 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. Indeed, the Koninklijke BAM Groep share price has gained 210% in three years. During the same period, EPS grew by 11% each year. Notably, the EPS growth has been slower than the annualised share price gain of 46% over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Koninklijke BAM Groep, it has a TSR of 733% for the last 5 years. 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

It's nice to see that Koninklijke BAM Groep shareholders have received a total shareholder return of 99% over the last year. And that does include the dividend. That's better than the annualised return of 53% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Koninklijke BAM Groep better, we need to consider many other factors. Take risks, for example - Koninklijke BAM Groep has 2 warning signs we think you should be aware of.

Of course Koninklijke BAM Groep may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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