Long term investing can be life changing when you buy and hold the truly great businesses. While not every stock performs well, when investors win, they can win big. Don't believe it? Then look at the Highland Gold Mining Limited ( LON:HGM ) share price. It's 437% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 10% gain in the last three months.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 the five years of share price growth, Highland Gold Mining moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Highland Gold Mining share price is up 107% in the last three years. In the same period, EPS is up 61% per year. This EPS growth is higher than the 27% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.45.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Highland Gold Mining has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Highland Gold Mining stock, you should check out this FREE detailed report on its balance sheet .
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Highland Gold Mining's TSR for the last 5 years was 643%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that Highland Gold Mining shareholders have received a total shareholder return of 53% over one year. That's including the dividend and was bolstered by the takeover offer. That gain is better than the annual TSR over five years, which is 49%. Therefore it seems like sentiment around the company has been positive lately. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Highland Gold Mining is showing 3 warning signs in our investment analysis , you should know about...
We will like Highland Gold Mining better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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