The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. To wit, the IDP Education Limited (ASX:IEL) share price has flown 274% in the last three years. Most would be happy with that. We note the stock price is up 3.0% in the last seven days.
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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 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.
IDP Education was able to grow its EPS at 21% per year over three years, sending the share price higher. This EPS growth is lower than the 55% average annual increase in the share price. 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 63.80.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that IDP Education has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, IDP Education's TSR for the last 3 years was 299%, 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 IDP Education rewarded shareholders with a total shareholder return of 85% over the last year. That's including the dividend. That's better than the annualized TSR of 59% over the last three years. Given the track record of solid returns over varying time frames, it might be worth putting IDP Education on your watchlist. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course IDP Education may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 firstname.lastname@example.org. 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.