Did You Miss Synlait Milk's (NZSE:SML) 59% Share Price Gain?

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Synlait Milk Limited (NZSE:SML) share price is 59% higher than it was five years ago, which is more than the market average. Zooming in, the stock is actually down 44% in the last year.

Check out our latest analysis for Synlait Milk

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, Synlait Milk managed to grow its earnings per share at 42% a year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 11.94 also suggests market apprehension.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

This free interactive report on Synlait Milk's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We've already covered Synlait Milk's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that Synlait Milk's TSR, at 64% is higher than its share price return of 59%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Synlait Milk shareholders are down 44% for the year, but the market itself is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For example, we've discovered 3 warning signs for Synlait Milk (1 is concerning!) that you should be aware of before investing here.

Of course Synlait Milk 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 NZ 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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