The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. For example, the Silvercorp Metals Inc. (TSE:SVM) share price has soared 190% in the last three years. Most would be happy with that. On top of that, the share price is up 59% in about a quarter.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
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 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 three years of share price growth, Silvercorp Metals achieved compound earnings per share growth of 4.9% per year. In comparison, the 43% 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. It’s not unusual to see the market ‘re-rate’ a stock, after a few years of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 71.89.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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, Silvercorp Metals’ TSR for the last 3 years was 196%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
We’re pleased to report that Silvercorp Metals shareholders have received a total shareholder return of 144% over one year. That’s including the dividend. That’s better than the annualised return of 8% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Silvercorp Metals you should know about.
