We believe all investors should try to buy and hold high quality multi-year winners. And the highest quality companies can see their stock prices rise dramatically. Just think of the savvy investors who held CD Projekt SA (WSE: CDR) over the past five years, when they’ve gained 414%. It just shows the value creation that some companies can achieve. Over the past week, stocks fell 4.5%.
Check out our latest review for CD Projekt
In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. By comparing earnings per share (EPS) and changes in the share price over time, we can get a sense of how investors’ attitudes towards a company have changed over time.
Over the five years of share price growth, CD Projekt achieved compound earnings per share (EPS) growth of 23% per year. This EPS growth is slower than the share price growth of 39% 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 EPS has changed over time in the image below (click on the graph to see the exact values).
We know that CD Projekt has improved its results over the past three years, but what does the future hold? This free CD Projekt’s interactive Balance Sheet Strength report is a great place to start if you want to dig deeper into the inventory.
What about dividends?
In addition to measuring stock price performance, investors should also consider the total shareholder return (TSR). 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 discounted capital increase and spinoff. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. As it turns out, CD Projekt’s TSR over the past 5 years was 439%, which exceeds the share price return mentioned earlier. The dividends paid by the company thus boosted the total shareholder return.
A different perspective
While the broader market gained around 31% last year, CD Projekt shareholders lost 57% (including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the plus side, long-term shareholders have made money, gaining 40% per year over half a decade. If fundamentals continue to point to sustainable long-term growth, the current sell-off could be an opportunity to consider. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Concrete example: we have spotted 2 warning signs for CD Projekt you must be aware.
But beware : CD Projekt may not be the best stock to buy. So take a look at this free list of interesting companies with past earnings growth (and new growth forecasts).
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on the PL exchanges.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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