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Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Senex Energy Limited (ASX:SXY) shareholders have enjoyed a 74% share price rise over the last half decade, well in excess of the market return of around 26% (not including dividends).
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Senex Energy
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, Senex Energy moved from a loss to profitability. That's generally thought to be a genuine positive, so we would expect to see an increasing share price.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Senex Energy has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Senex Energy's balance sheet strength is a great place to start, if you want to investigate the stock further.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Senex Energy the TSR over the last 5 years was 83%, 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!
A Different Perspective
It's nice to see that Senex Energy shareholders have received a total shareholder return of 64% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Senex Energy better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Senex Energy you should be aware of.