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While Alibaba Group Holding Limited (NYSE:BABA) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 15% in the last quarter. While that might be a setback, it doesn't negate the nice returns received over the last twelve months. In that time we've seen the stock easily surpass the market return, with a gain of 48%.
Although Alibaba Group Holding has shed US$16b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
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.
Alibaba Group Holding was able to grow EPS by 74% in the last twelve months. This EPS growth is significantly higher than the 48% increase in the share price. So it seems like the market has cooled on Alibaba Group Holding, despite the growth. Interesting.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Alibaba Group Holding has grown profits over the years, but the future is more important for shareholders. This free interactive report on Alibaba Group Holding's balance sheet strength is a great place to start, if you want to investigate the stock further.
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. In the case of Alibaba Group Holding, it has a TSR of 51% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We're pleased to report that Alibaba Group Holding shareholders have received a total shareholder return of 51% over one year. And that does include the dividend. There's no doubt those recent returns are much better than the TSR loss of 8% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Is Alibaba Group Holding cheap compared to other companies? These 3 valuation measures might help you decide.