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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 the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Hansen Technologies Limited (ASX:HSN) shareholders have enjoyed a 50% share price rise over the last half decade, well in excess of the market return of around 21% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 7.7%, including dividends.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
View our latest analysis for Hansen Technologies
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Hansen Technologies' earnings per share are down 1.0% per year, despite strong share price performance over five years.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
The modest 1.8% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 5.0% per year is probably viewed as evidence that Hansen Technologies is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
If you are thinking of buying or selling Hansen Technologies stock, you should check out this FREE detailed report on its balance sheet.
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, Hansen Technologies' TSR for the last 5 years was 67%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!