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On average, over time, stock markets tend to rise higher. This makes investing attractive. But not every stock you buy will perform as well as the overall market. Over the last year the SDI Limited (ASX:SDI) share price is up 11%, but that's less than the broader market return. Unfortunately the longer term returns are not so good, with the stock falling 9.7% in the last three years.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for SDI
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During the last year SDI grew its earnings per share (EPS) by 48%. It's fair to say that the share price gain of 11% did not keep pace with the EPS growth. So it seems like the market has cooled on SDI, despite the growth. Interesting. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.61.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that SDI 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?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, SDI's TSR for the last 1 year was 15%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
SDI shareholders are up 15% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 5% over half a decade It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand SDI better, we need to consider many other factors. Even so, be aware that SDI is showing 2 warning signs in our investment analysis , you should know about...