Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. Not every pick can be a winner, but when you pick the right stock, you can win big. Take, for example, the Resources Global Development Limited (Catalist:QSD) share price, which skyrocketed 338% over three years.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for Resources Global Development
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Resources Global Development was able to grow its EPS at 180% per year over three years, sending the share price higher. This EPS growth is higher than the 64% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 4.12 also reflects the negative sentiment around the stock.
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 Resources Global Development's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Resources Global Development's TSR for the last 3 years was 357%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
The last twelve months weren't great for Resources Global Development shares, which cost holders 17%, including dividends, while the market was up about 3.7%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 66% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. 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. To that end, you should learn about the 4 warning signs we've spotted with Resources Global Development (including 2 which make us uncomfortable) .