Did First Sponsor Group’s (SGX:ADN) Share Price Deserve to Gain 16%?

By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, First Sponsor Group Limited (SGX:ADN) shareholders have seen the share price rise 16% over three years, well in excess of the market return (9.2%, not including dividends).

Check out our latest analysis for First Sponsor Group

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).

First Sponsor Group was able to grow its EPS at 17% per year over three years, sending the share price higher. This EPS growth is higher than the 5.2% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.72.

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

SGX:ADN Past and Future Earnings, March 11th 2019
SGX:ADN Past and Future Earnings, March 11th 2019

It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on First Sponsor Group’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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of First Sponsor Group, it has a TSR of 22% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it’s never nice to take a loss, First Sponsor Group shareholders can take comfort that, including dividends, their trailing twelve month loss of 1.1% wasn’t as bad as the market loss of around -4.7%. Longer term investors wouldn’t be so upset, since they would have made 6.9%, each year, over three years. Given the three year returns are better than the return over the last year, it might be that the broader market has weighed on the stock recently. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies 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 SG exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.