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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term First Resources Limited (SGX:EB5) shareholders have enjoyed a 40% share price rise over the last half decade, well in excess of the market return of around 25% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 35% in the last year, including dividends.
Since it's been a strong week for First Resources shareholders, let's have a look at trend of the longer term fundamentals.
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, First Resources managed to grow its earnings per share at 23% a year. This EPS growth is higher than the 7% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.21.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that First Resources has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, First Resources' TSR for the last 5 years was 77%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that First Resources shareholders have received a total shareholder return of 35% over the last year. And that does include the dividend. That's better than the annualised return of 12% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand First Resources better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with First Resources (including 1 which is a bit concerning) .