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Solvar Limited (ASX:SVR) shareholders should be happy to see the share price up 28% in the last quarter. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 58% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for Solvar
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Solvar saw its EPS decline at a compound rate of 25% per year, over the last three years. So do you think it's a coincidence that the share price has dropped 25% per year, a very similar rate to the EPS? We don't. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. Rather, the share price has approximately tracked EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into Solvar's key metrics by checking this interactive graph of Solvar'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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Solvar, it has a TSR of -46% for the last 3 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
It's good to see that Solvar has rewarded shareholders with a total shareholder return of 44% in the last twelve months. Of course, that includes the dividend. There's no doubt those recent returns are much better than the TSR loss of 3% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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. Even so, be aware that Solvar is showing 4 warning signs in our investment analysis , and 2 of those can't be ignored...