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! For example, the Cimarex Energy Co. (NYSE:XEC) share price has soared 117% in the last 1 year. Most would be very happy with that, especially in just one year! In contrast, the longer term returns are negative, since the share price is 28% lower than it was three years ago.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Cimarex Energy was able to grow EPS by 98% in the last twelve months. Though we do note extraordinary items affected the bottom line. We note that the earnings per share growth isn't far from the share price growth (of 117%). This makes us think the market hasn't really changed its sentiment around the company, in the last year. It looks like the share price is responding to the EPS.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Cimarex Energy has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Cimarex Energy will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Cimarex Energy, it has a TSR of 122% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Cimarex Energy has rewarded shareholders with a total shareholder return of 122% in the last twelve months. Of course, that includes the dividend. That certainly beats the loss of about 9% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for Cimarex Energy that you should be aware of before investing here.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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