Even though Odfjell (OB:ODF) has lost kr838m market cap in last 7 days, shareholders are still up 709% over 5 years

For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. Just think about the savvy investors who held Odfjell SE (OB:ODF) shares for the last five years, while they gained 535%. If that doesn't get you thinking about long term investing, we don't know what will. But it's down 5.9% 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 5.9% 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.

View our latest analysis for Odfjell

There is no denying that markets are sometimes efficient, but prices do not always reflect 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 the last half decade, Odfjell became profitable. 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. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Odfjell share price has gained 446% in three years. Meanwhile, EPS is up 138% per year. This EPS growth is higher than the 76% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 5.54.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how Odfjell has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Odfjell's TSR for the last 5 years was 709%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Odfjell shareholders have received a total shareholder return of 114% over one year. Of course, that includes the dividend. That's better than the annualised return of 52% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 Odfjell , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of undervalued small caps 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 Norwegian 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com