Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. Not every pick can be a winner, but when you pick the right stock, you can win big. One such superstar is Hemisphere Energy Corporation (CVE:HME), which saw its share price soar 885% in three years. But it's down 3.8% in the last week. It really delights us to see such great share price performance for investors.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Hemisphere Energy was able to grow its EPS at 76% per year over three years, sending the share price higher. In comparison, the 114% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. That's not necessarily surprising considering the three-year track record of earnings growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Hemisphere Energy has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hemisphere Energy's TSR for the last 3 years was 972%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in Hemisphere Energy had a tough year, with a total loss of 16% (including dividends), against a market gain of about 2.1%. 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 45% 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. It's always interesting to track share price performance over the longer term. But to understand Hemisphere Energy better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Hemisphere Energy (of which 1 is a bit unpleasant!) you should know about.
Of course Hemisphere Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian 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.