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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Netcall plc (LON:NET) share price has soared 242% in the last half decade. Most would be very happy with that. On the other hand, the stock price has retraced 5.1% in the last week.
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.
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.
Over half a decade, Netcall managed to grow its earnings per share at 66% a year. The EPS growth is more impressive than the yearly share price gain of 28% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Netcall's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Netcall the TSR over the last 5 years was 253%, 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
It's good to see that Netcall has rewarded shareholders with a total shareholder return of 23% in the last twelve months. And that does include the dividend. However, the TSR over five years, coming in at 29% per year, is even more impressive. It's always interesting to track share price performance over the longer term. But to understand Netcall better, we need to consider many other factors. For instance, we've identified 1 warning sign for Netcall that you should be aware of.