Investors one-year returns in Thungela Resources (JSE:TGA) have grown faster than the company's underlying earnings growth
Thungela Resources Limited (JSE:TGA) shareholders might be concerned after seeing the share price drop 13% in the last month. But that cannot eclipse the spectacular share price rise we've seen over the last twelve months. Few could complain about the impressive 376% rise, throughout the period. So the recent fall isn't enough to negate the good performance. The real question is whether the fundamental business performance can justify the strong increase over the long term.
Although Thungela Resources has shed R2.5b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
View our latest analysis for Thungela Resources
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 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 Thungela Resources saw its earnings per share (EPS) increase strongly. This remarkable growth rate may not be sustainable, but it is still impressive. So we'd expect to see the share price higher. Strong growth like this can be evidence of a fundamental inflection point in the business, making it a good time to investigate the stock more closely.
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 Thungela Resources has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Thungela Resources will grow revenue in the future.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Thungela Resources' TSR for the last 1 year was 509%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Thungela Resources shareholders should be happy with the total gain of 509% over the last twelve months, including dividends. The more recent returns haven't been as impressive as the longer term returns, coming in at just 4.0%. Having said that, we doubt shareholders would be concerned. It seems the market is simply waiting on more information, because if the business delivers so will the share price (eventually). 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 Thungela Resources is showing 4 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...
But note: Thungela Resources may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on ZA exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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