Investors in Centrex (ASX:CXM) have seen massive returns of 485% over the past three years
It hasn't been the best quarter for Centrex Limited (ASX:CXM) shareholders, since the share price has fallen 25% in that time. But that doesn't displace its brilliant performance over three years. In fact, the share price has taken off in that time, up 419%. As long term investors the recent fall doesn't detract all that much from the longer term story. The share price action could signify that the business itself is dramatically improved, in that time.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Centrex
Centrex wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Centrex's revenue trended up 160% each year over three years. That's much better than most loss-making companies. And it's not just the revenue that is taking off. The share price is up 73% per year in that time. It's always tempting to take profits after a share price gain like that, but high-growth companies like Centrex can sometimes sustain strong growth for many years. So we'd recommend you take a closer look at this one, or even put it on your watchlist.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Centrex's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between Centrex's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Centrex's TSR of 485% over the last 3 years is better than the share price return.
A Different Perspective
Centrex shareholders are down 6.9% for the year, but the market itself is up 1.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 7% per year over half a decade. 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. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Centrex (of which 2 make us uncomfortable!) you should know about.
But note: Centrex may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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