SalMar (OB: SALM) offered shareholders a fantastic 262% total return on their investment
When buying shares in a company, you should keep in mind the possibility that it will fail and you could lose your money. But when you choose a truly successful business, you can Make more than 100%. For example, the price of SalMar ASA (OB: SALM) has grown 186% over the past five years. Shareholders also liked the 11% gain over the past three months.
See our latest review for SalMar
While the markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and changes in stock prices over time, we can get an idea of how investor attitudes towards a company have evolved over time.
Over five years of share price growth, SalMar has achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is slower than the share price growth of 23% per year, over the same period. This suggests that market participants hold society in the highest regard these days. And that’s hardly shocking given the growth history.
You can see how the EPS has changed over time in the image below (click on the graph to see the exact values).
It is probably interesting that the CEO is paid less than the median in companies of similar size. But while CEO compensation is still worth checking out, the more important question is whether the company can increase profits in the future. Dive deeper into profits by checking out this interactive SalMar Earnings, Revenue and Cash Flow chart.
What about dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any capital increase and discounted spin-off. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. In fact, SalMar’s TSR for the past 5 years was 262%, which exceeds the share price return mentioned earlier. And there is no price in assuming that dividend payouts largely explain the divergence!
A different perspective
SalMar shareholders received a 44% year-over-year return (including dividends), which is not far from the overall market return. Most would be happy with a gain, and it helps that the return for the year is actually better than the five-year average return, which was 29%. Even if the growth in the share price slows down from there, there’s a good chance this is a deal worth watching in the long term. I find it very interesting to look at the stock price over the long term as an indicator of the performance of the company. But to really understand better, we have to take other information into account as well. Take, for example, the ubiquitous spectrum of investment risk. We have identified 2 warning signs with SalMar, and understanding them should be part of your investment process.
Of course SalMar may not be the best stock to buy. Then you might want to see this free collection of growth stocks.
Please note that the market returns quoted in this article reflect the average market weighted returns of stocks that are currently trading on ANY stock exchange.
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