We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. To wit, the Argent Industrial Limited (JSE:ART) share price has soared 474% over five years. If that doesn’t get you thinking about long term investing, we don’t know what will.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During five years of share price growth, Argent Industrial achieved compound earnings per share (EPS) growth of 35% per year. So the EPS growth rate is rather close to the annualized share price gain of 42% per year. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. Indeed, it would appear the share price is reacting to the EPS.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on Argent Industrial’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Argent Industrial, it has a TSR of 588% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
Argent Industrial’s TSR for the year was broadly in line with the market average, at 26%. It has to be noted that the recent return falls short of the 47% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Argent Industrial a stock worth watching. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with Argent Industrial , and understanding them should be part of your investment process.