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Can You Imagine How Chemring Group's (LON:CHG) Shareholders Feel About The 37% Share Price Increase?

Simply Wall St

By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, Chemring Group PLC (LON:CHG) shareholders have seen the share price rise 37% over three years, well in excess of the market return (4.2%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.8% in the last year , including dividends .

Check out our latest analysis for Chemring Group

Given that Chemring Group didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Chemring Group actually saw its revenue drop by 20% per year over three years. Despite the lack of revenue growth, the stock has returned 11%, compound, over three years. Unless the company is going to make profits soon, we would be pretty cautious about it.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

LSE:CHG Income Statement, October 24th 2019

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. If you are thinking of buying or selling Chemring Group stock, you should check out this free report showing analyst profit forecasts.

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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Chemring Group's TSR for the last 3 years was 44%, 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

Chemring Group provided a TSR of 6.8% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 0.4% endured over half a decade. It could well be that the business is stabilizing. 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 GB 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 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. Thank you for reading.