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Announcing: Energy One (ASX:EOL) Stock Soared An Exciting 641% In The Last Five Years

Simply Wall St

Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Energy One Limited (ASX:EOL) share price is up a whopping 641% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 46% gain in the last three months.

Anyone who held for that rewarding ride would probably be keen to talk about it.

See our latest analysis for Energy One

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, Energy One achieved compound earnings per share (EPS) growth of 27% per year. This EPS growth is lower than the 49% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

ASX:EOL Past and Future Earnings, January 9th 2020

Dive deeper into Energy One's key metrics by checking this interactive graph of Energy One's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Energy One's TSR for the last 5 years was 702%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Energy One has rewarded shareholders with a total shareholder return of 162% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 52% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Is Energy One cheap compared to other companies? These 3 valuation measures might help you decide.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.