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While Alkali Metals Limited (NSE:ALKALI) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 11% in the last quarter. But that doesn't change the fact that shareholders have received really good returns over the last five years. In fact, the share price is 102% higher today. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend.
Check out our latest analysis for Alkali Metals
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.
During the five years of share price growth, Alkali Metals moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the Alkali Metals stock price is 29% lower in the last three years. During the same period, EPS grew by 8.1% each year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -11% per year.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Alkali Metals's key metrics by checking this interactive graph of Alkali Metals'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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Alkali Metals's TSR for the last 5 years was 118%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Alkali Metals shareholders are down 40% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 12%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 17% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is Alkali Metals cheap compared to other companies? These 3 valuation measures might help you decide.