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While not a mind-blowing move, it is good to see that the Scales Corporation Limited (NZSE:SCL) share price has gained 12% in the last three months. But that doesn't help the fact that the three year return is less impressive. In fact, the share price is down 31% in the last three years, falling well short of the market return.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for Scales
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Scales saw its EPS decline at a compound rate of 38% per year, over the last three years. This fall in the EPS is worse than the 12% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term. With a P/E ratio of 92.97, it's fair to say the market sees a brighter future for the business.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into Scales' key metrics by checking this interactive graph of Scales'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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Scales' TSR for the last 3 years was -20%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Scales shareholders have received a total shareholder return of 11% over one year. And that does include the dividend. That certainly beats the loss of about 2% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Scales is showing 2 warning signs in our investment analysis , you should know about...