One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, Fiamma Holdings Berhad (KLSE:FIAMMA) shareholders have seen the share price rise 95% over three years, well in excess of the market decline (1.4%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 10.0% in the last year.
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.
See our latest analysis for Fiamma Holdings Berhad
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 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).
During three years of share price growth, Fiamma Holdings Berhad achieved compound earnings per share growth of 13% per year. This EPS growth is lower than the 25% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. That's not necessarily surprising considering the three-year track record of earnings growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Fiamma Holdings Berhad has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between Fiamma Holdings Berhad's total shareholder return (TSR) and its share price change, which we've covered above. 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 Fiamma Holdings Berhad shareholders, and that cash payout contributed to why its TSR of 116%, over the last 3 years, is better than the share price return.
A Different Perspective
It's nice to see that Fiamma Holdings Berhad shareholders have received a total shareholder return of 10.0% over the last year. However, the TSR over five years, coming in at 18% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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. Even so, be aware that Fiamma Holdings Berhad is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...