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Is JB Hi-Fi's (ASX:JBH) 145% Share Price Increase Well Justified?

Simply Wall St

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, you can make far more than 100% on a really good stock. One great example is JB Hi-Fi Limited (ASX:JBH) which saw its share price drive 145% higher over five years. It's also good to see the share price up 10% over the last quarter. But this could be related to the strong market, which is up 5.0% in the last three months.

View our latest analysis for JB Hi-Fi

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During five years of share price growth, JB Hi-Fi achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is slower than the share price growth of 20% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

ASX:JBH Past and Future Earnings, January 25th 2020

It might be well worthwhile taking a look at our free report on JB Hi-Fi's earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, JB Hi-Fi's TSR for the last 5 years was 217%, 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 nice to see that JB Hi-Fi shareholders have received a total shareholder return of 88% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 26% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand JB Hi-Fi better, we need to consider many other factors. Be aware that JB Hi-Fi is showing 2 warning signs in our investment analysis , you should know about...

But note: JB Hi-Fi 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 AU exchanges.

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.

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. Thank you for reading.