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Capital Appreciation Limited (JSE:CTA) shareholders might be concerned after seeing the share price drop 13% in the last quarter. On the bright side, returns over the past five years have been very good. After all, the stock has risen 47% during this time, outpacing the market. Unfortunately, not all shareholders are holding for the long term, so spare a thought for those caught up in his 28% decline over the past 12 months.
With that in mind, it’s worth checking whether a company’s underlying fundamentals are driving its long-term performance, or if there are any discrepancies.
Check out our latest analysis for Capital Appreciation.
Markets are powerful pricing mechanisms, but stock prices reflect not only underlying business performance but also investor sentiment. One way he looks at how market sentiment has changed over time is to look at the interaction between a company’s stock price and his earnings per share (EPS).
Over five years, Capital Appreciation was able to grow its earnings per share at 1.1% per year. This EPS growth rate is lower than the average annual increase in the share price of 8%. This suggests that market participants have been valuing the company highly recently. And this is not surprising given its track record of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend taking a closer look at its historical growth trends, available here.
What will happen to the dividend?
When looking at return on investment, it is important to consider the following differences: Total shareholder return (TSR) and stock price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often much higher than the share price return. Coincidentally, Capital Appreciation’s TSR over the last five years was 92%, which is better than the share price return mentioned above. And there’s no kudos to speculating that dividend payments are the main explanation for the divergence.
different perspective
While the broader market has gained about 2.0% in the last year, Capital Appreciation shareholders have lost 23% (even including dividends). Even blue-chip stocks can see their share prices drop from time to time, and we like to see improvement in a company’s fundamental metrics before we get too interested. Long-term investors probably won’t be too upset since they would have made a 14% return each year over five years. If fundamental data continues to point to long-term sustainable growth, the current selloff could be an opportunity worth considering. I think it’s very interesting to look at stock price over the long term as an indicator of business performance. But to really gain insight, you need to consider other information as well.Note that we still see an increase in capital 5 warning signs in investment analysis one of them cannot be ignored…
If you want to buy stocks with management, you might like this free List of companies. (Hint: Insiders are buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South African exchanges.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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