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When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Airtel Africa Plc (LON:AAF) shareholders would be well aware of this, since the stock is up 103% in five years. It's down 3.7% in the last seven days.
Although Airtel Africa has shed UK£164m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
See our latest analysis for Airtel Africa
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
During five years of share price growth, Airtel Africa actually saw its EPS drop 54% per year.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
There's no sign of growing dividends, which might have explained the resilient share price. It could be that the revenue growth of 11% per year is viewed as evidence that Airtel Africa is growing. In that case, the company may be sacrificing current earnings per share to drive growth.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Airtel Africa is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Airtel Africa stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 Airtel Africa, it has a TSR of 153% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!