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The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the BKI Investment Company Limited (ASX:BKI) share price is up 11% in the last five years, that's less than the market return. Zooming in, the stock is up just 0.6% in the last year.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
See our latest analysis for BKI Investment
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
During five years of share price growth, BKI Investment actually saw its EPS drop 3.8% per year.
With EPS falling, but a modestly increasing share price, it seems that the market was probably too pessimistic about the stock in the past. In the long term, though, it will be hard for the share price rises to continue without improving EPS.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on BKI Investment's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, BKI Investment's TSR for the last 5 years was 39%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
BKI Investment shareholders gained a total return of 5.1% during the year. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 7% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for BKI Investment you should know about.