Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Hikma Pharmaceuticals PLC (LON:HIK) share price is up 23% in the last 5 years, clearly besting the market return of around 3.1% (ignoring dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 22% in the last year, including dividends.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Hikma Pharmaceuticals
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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).
Hikma Pharmaceuticals’ earnings per share are down 3.0% per year, despite strong share price performance over five years.
Since EPS is down a bit, and the share price is up, it’s probably that the market previously had some concerns about the company, but the reality has been better than feared. Having said that, if the EPS falls continue we’d be surprised to see a sustained increase in share price.
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. This free interactive report on Hikma Pharmaceuticals’ earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Hikma Pharmaceuticals, it has a TSR of 38% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
