Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the Samil Enterprise share price has climbed 94% in five years, easily topping the market return of 41% (ignoring dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 27% in the last year , including dividends .
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Samil Enterprise managed to grow its earnings per share at 4.4% a year. This EPS growth is slower than the share price growth of 14% per year, over the same period. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. And that’s hardly shocking given the track record of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on Samil Enterprise’s earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We’ve already covered Samil Enterprise’s share price action, but we should also mention its 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. Dividends have been really beneficial for Samil Enterprise shareholders, and that cash payout contributed to why its TSR of 122%, over the last 5 years, is better than the share price return.
A Different Perspective
Samil Enterprise shareholders are up 27% for the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 17% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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 3 warning signs for Samil Enterprise you should be aware of, and 1 of them makes us a bit uncomfortable.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on KR 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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