When we invest, we’re generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the Sapiens International Corporation N.V. (NASDAQ:SPNS) share price is up 65% in the last 5 years, clearly besting than the market return of around 41% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 54%, including dividends.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Sapiens International’s earnings per share are down 0.9% per year, despite strong share price performance over five years. By glancing at these numbers, we’d posit that the decline in earnings per share is not representative of how the business has changed over the years. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
We doubt the modest 1.4% dividend yield is attracting many buyers to the stock. On the other hand, Sapiens International’s revenue is growing nicely, at a compound rate of 16% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
We know that Sapiens International has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Sapiens International
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 discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Sapiens International’s TSR for the last 5 years was 76%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s good to see that Sapiens International has rewarded shareholders with a total shareholder return of 54% in the last twelve months. Of course, that includes the dividend. That’s better than the annualised return of 12% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before deciding if you like the current share price, check how Sapiens International scores on these 3 valuation metrics.
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 US 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 firstname.lastname@example.org. 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.