We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. For example, the Boule Diagnostics AB (publ) (STO:BOUL) share price is up a whopping 399% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. And in the last week the share price has popped 5.4%.
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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.
During the last half decade, Boule Diagnostics became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Boule Diagnostics share price has gained 206% in three years. During the same period, EPS grew by 32% each year. This EPS growth is lower than the 45% average annual increase in the share price over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Boule Diagnostics has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Boule Diagnostics the TSR over the last 5 years was 416%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Boule Diagnostics shareholders are down 21% for the year (even including dividends), but the market itself is up 3.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 39% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE exchanges.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.