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These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But you can significantly boost your returns by picking above-average stocks. For example, the RHI Magnesita N.V. (LON:RHIM) share price is up 29% in the last 1 year, clearly besting the market return of around 11% (not including dividends). That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 7.8% in the last three years.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for RHI Magnesita
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
RHI Magnesita was able to grow EPS by 33% in the last twelve months. This EPS growth is reasonably close to the 29% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. It makes intuitive sense that the share price and EPS would grow at similar rates.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how RHI Magnesita has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for RHI Magnesita the TSR over the last 1 year was 32%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that RHI Magnesita has rewarded shareholders with a total shareholder return of 32% in the last twelve months. That's including the dividend. Notably the five-year annualised TSR loss of 0.2% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for RHI Magnesita you should know about.