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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Oakley Capital Investments Limited (LON:OCI) shareholders have enjoyed a 82% share price rise over the last half decade, well in excess of the market decline of around 4.9% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 2.4%, including dividends.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for Oakley Capital Investments
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 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, Oakley Capital Investments actually saw its EPS drop 4.9% per year.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
We doubt the modest 0.9% dividend yield is attracting many buyers to the stock. The revenue reduction of 1.5% per year is not a positive. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Oakley Capital Investments' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Oakley Capital Investments, it has a TSR of 94% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!