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While Foraco International SA (TSE:FAR) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 14% in the last quarter. But over five years returns have been remarkably great. Indeed, the share price is up a whopping 540% in that time. Arguably, the recent fall is to be expected after such a strong rise. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 39% drop, in the last year. Anyone who held for that rewarding ride would probably be keen to talk about it.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
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. 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 five years of share price growth, Foraco International achieved compound earnings per share (EPS) growth of 88% per year. The EPS growth is more impressive than the yearly share price gain of 45% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 4.92.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Foraco International's earnings, revenue and cash flow.
What About The Total Shareholder Return (TSR)?
We've already covered Foraco International's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Foraco International shareholders, and that cash payout contributed to why its TSR of 552%, over the last 5 years, is better than the share price return.
A Different Perspective
While the broader market gained around 13% in the last year, Foraco International shareholders lost 38%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 45% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Foraco International better, we need to consider many other factors. For example, we've discovered 1 warning sign for Foraco International that you should be aware of before investing here.