By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. Just take a look at Perak Transit Berhad (KLSE:PTRANS), which is up 94%, over three years, soundly beating the market return of 4.9% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 6.0% in the last year, including dividends.
So let’s assess the underlying fundamentals over the last 3 years and see if they’ve moved in lock-step with shareholder returns.
View our latest analysis for Perak Transit Berhad
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. 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 three years of share price growth, Perak Transit Berhad achieved compound earnings per share growth of 4.0% per year. In comparison, the 25% per year gain in the share price outpaces the EPS growth. So it’s fair to assume the market has a higher opinion of the business than it did three years ago. That’s not necessarily surprising considering the three-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).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Perak Transit 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Perak Transit Berhad, it has a TSR of 113% for the last 3 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
Perak Transit Berhad shareholders are up 6.0% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 18% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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. To that end, you should learn about the 2 warning signs we’ve spotted with Perak Transit Berhad (including 1 which can’t be ignored) .
