When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. One great example is AVANGARD Joint Stock BANK (MCX:AVAN) which saw its share price drive 115% higher over five years. And in the last week the share price has popped 5.8%. But this could be related to the buoyant market which is up about 8.2% in a week.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 five years of share price growth, AVANGARD BANK achieved compound earnings per share (EPS) growth of 28% per year. This EPS growth is higher than the 17% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 9.09.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into AVANGARD BANK’s key metrics by checking this interactive graph of AVANGARD BANK’s earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, AVANGARD BANK’s TSR for the last 5 years was 139%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
AVANGARD BANK shareholders are down 8.3% for the year (even including dividends) , but the market itself is up 4.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn’t be so upset, since they would have made 19%, 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. Case in point: We’ve spotted 1 warning sign for AVANGARD BANK you should be aware of.
But note: AVANGARD BANK 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 RU exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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