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For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the ADF Group Inc. (TSE:DRX) share price. It's 673% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. It's down 1.1% in the last seven days. It really delights us to see such great share price performance for investors.
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.
View our latest analysis for ADF Group
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.
During the five years of share price growth, ADF Group moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. 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 ADF Group share price is up 498% in the last three years. During the same period, EPS grew by 81% each year. This EPS growth is remarkably close to the 81% average annual increase in the share price (over three years, again). That suggests that the market sentiment around the company hasn't changed much over that time. Arguably the share price is reflecting the earnings per share.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that ADF Group has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on ADF Group'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). 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. In the case of ADF Group, it has a TSR of 715% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!