When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. One great example is RCE Capital Berhad (KLSE:RCECAP) which saw its share price drive 237% higher over five years. In the last week shares have slid back 1.3%.
Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.
View our latest analysis for RCE Capital Berhad
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, RCE Capital Berhad achieved compound earnings per share (EPS) growth of 1.6% per year. This EPS growth is slower than the share price growth of 27% 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. That’s not necessarily surprising considering the five-year track record of earnings growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on RCE Capital Berhad’s earnings, revenue and cash flow.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for RCE Capital Berhad the TSR over the last 5 years was 379%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
RCE Capital Berhad shareholders are up 3.1% for the year (even including dividends). Unfortunately this falls short of the market return. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 37% over five years. It’s quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Even so, be aware that RCE Capital Berhad is showing 2 warning signs in our investment analysis , and 1 of those can’t be ignored…
