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Did Globe International's (ASX:GLB) Share Price Deserve to Gain 78%?

Simply Wall St

Globe International Limited (ASX:GLB) shareholders might be concerned after seeing the share price drop 15% in the last quarter. Looking further back, the stock has generated good profits over five years. After all, the share price is up a market-beating 78% in that time. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 45% decline over the last twelve months.

Check out our latest analysis for Globe International

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Globe International became profitable. That's generally thought to be a genuine positive, so we would expect to see an increasing share price. 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 Globe International share price has gained 32% in three years. During the same period, EPS grew by 20% each year. This EPS growth is higher than the 9.7% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 6.68.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

ASX:GLB Past and Future Earnings, December 5th 2019

It might be well worthwhile taking a look at our free report on Globe International's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Globe International's TSR for the last 5 years was 150%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 22% in the last year, Globe International shareholders lost 40% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 20%, each year, over five years. 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. If you would like to research Globe International in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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.