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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Fonterra Co-operative Group Limited (NZSE:FCG) share price has soared 107% return in just a single year. It's also good to see the share price up 33% over the last quarter. It is also impressive that the stock is up 42% over three years, adding to the sense that it is a real winner.
In light of the stock dropping 6.5% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive one-year return.
See our latest analysis for Fonterra Co-operative Group
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last year, Fonterra Co-operative Group actually saw its earnings per share drop 5.7%.
So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We note that the most recent dividend payment is higher than the payment a year ago, so that may have assisted the share price. Income-seeking investors probably helped bid up the stock price.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Fonterra Co-operative Group, it has a TSR of 145% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.