Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Sarawak Plantation Berhad (KLSE:SWKPLNT) share price is up 29% in the last 5 years, clearly besting the market decline of around 3.4% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 0.6% in the last year , including dividends .
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
See our latest analysis for Sarawak Plantation Berhad
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the five years of share price growth, Sarawak Plantation Berhad moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Sarawak Plantation Berhad share price is down 6.3% in the last three years. In the same period, EPS is up 4.5% per year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -2.1% a year for three years.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
This free interactive report on Sarawak Plantation Berhad's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Sarawak Plantation Berhad the TSR over the last 5 years was 70%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!