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. To wit, the DKSH Holding share price has climbed 25% in five years, easily topping the market return of 13% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 15%, including dividends.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for DKSH Holding
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During five years of share price growth, DKSH Holding actually saw its EPS drop 3.4% per year.
Since EPS is down a bit, and the share price is up, it's probably that the market previously had some concerns about the company, but the reality has been better than feared. In the long term, though, it will be hard for the share price rises to continue without improving EPS.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
This free interactive report on DKSH Holding's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, DKSH Holding's TSR for the last 5 years was 46%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
DKSH Holding provided a TSR of 15% over the year (including dividends). That's fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 8% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. Keeping this in mind, a solid next step might be to take a look at DKSH Holding's dividend track record. This free interactive graph is a great place to start.