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Shareholders Are Thrilled That The Synlait Milk (NZSE:SML) Share Price Increased 150%

Simply Wall St

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of Synlait Milk Limited (NZSE:SML) stock is up an impressive 150% over the last five years. The last week saw the share price soften some 2.8%.

See our latest analysis for Synlait Milk

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

During five years of share price growth, Synlait Milk achieved compound earnings per share (EPS) growth of 123% per year. This EPS growth is higher than the 20% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NZSE:SML Past and Future Earnings May 17th 2020

It might be well worthwhile taking a look at our free report on Synlait Milk's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Synlait Milk's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Synlait Milk hasn't been paying dividends, but its TSR of 158% exceeds its share price return of 150%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Investors in Synlait Milk had a tough year, with a total loss of 30%, against a market gain of about 2.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 21% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Synlait Milk (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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 NZ 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.