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It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For instance the Van Lanschot Kempen NV (AMS:VLK) share price is 104% higher than it was three years ago. Most would be happy with that. It's also good to see the share price up 14% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
Since the stock has added €70m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over the last three years, Van Lanschot Kempen failed to grow earnings per share, which fell 2.4% (annualized).
Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Therefore, it makes sense to look into other metrics.
Interestingly, the dividend has increased over time; so that may have given the share price a boost. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 6.2% per year might also encourage buyers.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Van Lanschot Kempen in this interactive graph of future profit estimates.
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. We note that for Van Lanschot Kempen the TSR over the last 3 years was 183%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!