Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term Fiamma Holdings Berhad (KLSE:FIAMMA) shareholders have enjoyed a 83% share price rise over the last half decade, well in excess of the market decline of around 5.8% (not including dividends).
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
Check out our latest analysis for Fiamma Holdings Berhad
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.
During five years of share price growth, Fiamma Holdings Berhad achieved compound earnings per share (EPS) growth of 16% per year. The EPS growth is more impressive than the yearly share price gain of 13% over the same period. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.68.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Fiamma Holdings Berhad has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
What About The Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Fiamma Holdings Berhad's total shareholder return (TSR) and its 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. Dividends have been really beneficial for Fiamma Holdings Berhad shareholders, and that cash payout contributed to why its TSR of 121%, over the last 5 years, is better than the share price return.
A Different Perspective
Fiamma Holdings Berhad shareholders are down 26% for the year, but the market itself is up 9.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 3 warning signs for Fiamma Holdings Berhad you should be aware of, and 1 of them is a bit unpleasant.