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It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Renold plc (LON:RNO) share price has soared 119% in the last three years. That sort of return is as solid as granite. Also pleasing for shareholders was the 32% gain in the last three months.
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.
Check out our latest analysis for Renold
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 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.
Renold was able to grow its EPS at 78% per year over three years, sending the share price higher. The average annual share price increase of 30% 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 7.56 also reflects the negative sentiment around the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Renold has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Renold stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
It's good to see that Renold has rewarded shareholders with a total shareholder return of 111% in the last twelve months. That gain is better than the annual TSR over five years, which is 14%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Renold better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Renold (of which 1 is concerning!) you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).