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It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For example, the Hester Biosciences Limited (NSE:HESTERBIO) share price has soared 131% in the last three years. That sort of return is as solid as granite. And in the last week the share price has popped 7.5%.
See our latest analysis for Hester Biosciences
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During three years of share price growth, Hester Biosciences achieved compound earnings per share growth of 29% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 32% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Quite to the contrary, the share price has arguably reflected the EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Hester Biosciences 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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Hester Biosciences's TSR for the last 3 years was 136%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Hester Biosciences shareholders have gained 49% (in total) over the last year. That's including the dividend. That's better than the annualized TSR of 33% over the last three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. Before forming an opinion on Hester Biosciences you might want to consider these 3 valuation metrics.