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Is Hapag-Lloyd's (ETR:HLAG) 230% Share Price Increase Well Justified?

Simply Wall St

Unless you borrow money to invest, the potential losses are limited. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example Hapag-Lloyd Aktiengesellschaft (ETR:HLAG). Its share price is already up an impressive 230% in the last twelve months. Also pleasing for shareholders was the 27% gain in the last three months. Also impressive, the stock is up 178% over three years, making long term shareholders happy, too.

View our latest analysis for Hapag-Lloyd

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 year Hapag-Lloyd saw its earnings per share (EPS) increase strongly. This remarkable growth rate may not be sustainable, but it is still impressive. So we'd expect to see the share price higher. We're real advocates of letting inflection points like this guide our research as stock pickers.

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

XTRA:HLAG Past and Future Earnings, January 16th 2020

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What about the Total Shareholder Return (TSR)?

We've already covered Hapag-Lloyd's share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Hapag-Lloyd's TSR of 231% for the year exceeded its share price return, because it has paid dividends.

A Different Perspective

It's nice to see that Hapag-Lloyd shareholders have gained 231% (in total) over the last year. And yes, that does include the dividend. That's better than the annualized TSR of 42% over the last three years. The improving returns to shareholders suggests the stock is becoming more popular with time. 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. To that end, you should be aware of the 1 warning sign we've spotted with Hapag-Lloyd .

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 DE 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.