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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Costain Group PLC (LON:COST) share price has soared 128% in the last three years. That sort of return is as solid as granite. In the last week the share price is up 2.4%.
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.
Check out our latest analysis for Costain Group
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. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During three years of share price growth, Costain Group achieved compound earnings per share growth of 71% per year. The average annual share price increase of 32% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 9.58 also reflects the negative sentiment around the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Costain Group has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Costain Group's financial health with this free report on its balance sheet.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Costain Group's TSR for the last 3 years was 133%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Costain Group shareholders have received a total shareholder return of 71% over the last year. Of course, that includes the dividend. There's no doubt those recent returns are much better than the TSR loss of 5% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Before deciding if you like the current share price, check how Costain Group scores on these 3 valuation metrics.