In This Article:
It might be of some concern to shareholders to see the Clinuvel Pharmaceuticals Limited (ASX:CUV) share price down 14% in the last month. But that does not change the realty that the stock's performance has been terrific, over five years. To be precise, the stock price is 589% higher than it was five years ago, a wonderful performance by any measure. So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 34% decline over the last twelve months.
Anyone who held for that rewarding ride would probably be keen to talk about it.
View our latest analysis for Clinuvel Pharmaceuticals
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...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the five years of share price growth, Clinuvel Pharmaceuticals moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Clinuvel Pharmaceuticals share price is up 137% in the last three years. During the same period, EPS grew by 31% each year. This EPS growth is reasonably close to the 33% average annual increase in the share price (over three years, again). So you could reasonably conclude that investor sentiment towards the stock has remained pretty steady, over time. There's a strong correlation between the share price and EPS.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Clinuvel Pharmaceuticals has grown profits over the years, but the future is more important for shareholders. This free interactive report on Clinuvel Pharmaceuticals' 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Clinuvel Pharmaceuticals, it has a TSR of 591% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.