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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Rentokil Initial plc (LON:RTO) which saw its share price drive 188% higher over five years. In contrast, the stock has fallen 8.5% in the last 30 days. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
Check out our latest analysis for Rentokil Initial
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).
Over half a decade, Rentokil Initial managed to grow its earnings per share at 8.0% a year. This EPS growth is lower than the 24% average annual increase in the share price. 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. This optimism is visible in its fairly high P/E ratio of 46.42.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on Rentokil Initial's earnings, revenue and cash flow 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Rentokil Initial, it has a TSR of 204% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Rentokil Initial shareholders are down 0.6% for the year (even including dividends), but the market itself is up 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 25%, 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 Rentokil Initial better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with Rentokil Initial (including 1 which makes us a bit uncomfortable) .