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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. But Algoma Central Corporation (TSE:ALC) has fallen short of that second goal, with a share price rise of 74% over five years, which is below the market return. However, if you include the dividends then the return is market beating. The last year hasn't been great either, with the stock up just 3.0%.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Over half a decade, Algoma Central managed to grow its earnings per share at 29% a year. This EPS growth is higher than the 12% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.76.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Algoma Central's earnings, revenue and cash flow 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Algoma Central the TSR over the last 5 years was 183%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Algoma Central shareholders are up 8.5% for the year (even including dividends). But that was short of the market average. If we look back over five years, the returns are even better, coming in at 23% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Algoma Central better, we need to consider many other factors. Even so, be aware that Algoma Central is showing 2 warning signs in our investment analysis , you should know about...