Buying shares in the best businesses can build meaningful wealth for you and your family. While not every stock performs well, when investors win, they can win big. To wit, the Microlink Solutions Berhad (KLSE:MICROLN) share price has soared 623% over five years. And this is just one example of the epic gains achieved by some long term investors. We love happy stories like this one. The company should be really proud of that performance!
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 Microlink Solutions Berhad
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the five years of share price growth, Microlink Solutions Berhad 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. Indeed, the Microlink Solutions Berhad share price has gained 108% in three years. During the same period, EPS grew by 7.8% each year. This EPS growth is lower than the 28% average annual increase in the share price over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Microlink Solutions Berhad's earnings, revenue and cash flow.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Microlink Solutions Berhad, it has a TSR of 638% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 9.7% in the last year, Microlink Solutions Berhad shareholders lost 8.2% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 49%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Microlink Solutions Berhad you should know about.