By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Ramsdens Holdings PLC (LON:RFX) shareholders have seen the share price rise 42% over three years, well in excess of the market decline (2.0%, not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 21% in the last year, including dividends.
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.
See our latest analysis for Ramsdens Holdings
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Ramsdens Holdings was able to grow its EPS at 181% per year over three years, sending the share price higher. This EPS growth is higher than the 12% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 9.07.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Ramsdens Holdings has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Ramsdens Holdings’ financial health with this free report on its balance sheet.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Ramsdens Holdings, it has a TSR of 59% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
It’s nice to see that Ramsdens Holdings shareholders have received a total shareholder return of 21% over the last year. That’s including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.4% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we’ve discovered 2 warning signs for Ramsdens Holdings that you should be aware of before investing here.
