Stock Analysis

Rafael Microelectronics (GTSM:6568) Has Compensated Shareholders With A Respectable 76% Return On Their Investment

TPEX:6568
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The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market But Rafael Microelectronics, Inc. (GTSM:6568) has fallen short of that second goal, with a share price rise of 49% over five years, which is below the market return. The last year has been disappointing, with the stock price down 14% in that time.

See our latest analysis for Rafael Microelectronics

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. 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.

Rafael Microelectronics' earnings per share are down 1.9% per year, despite strong share price performance over five years.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

We note that the dividend is higher than it was previously - always nice to see. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 3.6% per year might also encourage buyers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
GTSM:6568 Earnings and Revenue Growth January 20th 2021

This free interactive report on Rafael Microelectronics' balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Rafael Microelectronics the TSR over the last 5 years was 76%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Rafael Microelectronics shareholders are down 10% for the year (even including dividends), but the market itself is up 34%. 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 12%, 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. It's always interesting to track share price performance over the longer term. But to understand Rafael Microelectronics better, we need to consider many other factors. For instance, we've identified 3 warning signs for Rafael Microelectronics (1 shouldn't be ignored) that you should be aware of.

But note: Rafael Microelectronics 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 TW 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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