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If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. To wit, the SEMAFO Inc. (TSE:SMF) share price is 35% higher than it was a year ago, much better than the market return of around -2.2% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Unfortunately the longer term returns are not so good, with the stock falling 21% in the last three years.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last year SEMAFO grew its earnings per share, moving from a loss to a profit. When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
However the year on year revenue growth of 46% would help. Many businesses do go through a faze where they have to forgo some profits to drive business development, and sometimes its for the best.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
If you are thinking of buying or selling SEMAFO stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
It's good to see that SEMAFO has rewarded shareholders with a total shareholder return of 35% in the last twelve months. That's better than the annualised return of 0.3% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on SEMAFO it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.