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It's nice to see the Solvar Limited (ASX:SVR) share price up 12% in a week. But that doesn't change the fact that the returns over the last three years have been disappointing. Regrettably, the share price slid 62% in that period. Some might say the recent bounce is to be expected after such a bad drop. Perhaps the company has turned over a new leaf.
Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.
Check out our latest analysis for Solvar
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 unfortunate three years of share price decline, Solvar actually saw its earnings per share (EPS) improve by 5.6% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
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.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Solvar has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Solvar
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. As it happens, Solvar's TSR for the last 3 years was -53%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!