RATIONAL's (ETR:RAA) investors will be pleased with their respectable 53% return over the last five years
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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term RATIONAL Aktiengesellschaft (ETR:RAA) shareholders have enjoyed a 43% share price rise over the last half decade, well in excess of the market return of around 24% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 16%, including dividends.
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So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for RATIONAL
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 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.
Over half a decade, RATIONAL managed to grow its earnings per share at 6.4% a year. This EPS growth is reasonably close to the 7% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Indeed, it would appear the share price is reacting to the EPS.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on RATIONAL'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. 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. We note that for RATIONAL the TSR over the last 5 years was 53%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
RATIONAL shareholders have received returns of 16% over twelve months (even including dividends), which isn't far from the general market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 9% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. Before forming an opinion on RATIONAL you might want to consider these 3 valuation metrics.