While it may not be enough for some shareholders, we think it is good to see the Solar A/S (CPH:SOLAR B) share price up 17% in a single quarter. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 17% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Solar saw its EPS decline at a compound rate of 25% per year, over the last three years. This fall in the EPS is worse than the 6.0% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Solar's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Solar the TSR over the last 3 years was -8.3%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Solar shareholders gained a total return of 8.0% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 0.9% per year over five year. It is possible that returns will improve along with the business fundamentals. 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. For example, we've discovered 4 warning signs for Solar that you should be aware of before investing here.
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 DK exchanges.
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.
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