The worst outcome of buying shares in a company is that you lose all your money (assuming there is no leverage). But the good news is that if you buy shares in a high-quality company at the right price, you can make gains over 100%.
For example, the Oracle Financial Services Software Limited (NSE: OFSS) share price is up an impressive 217% in the last five years. Shareholders have also seen a pleasing 31% gain in the last three months. But this move may have been helped by a reasonably buoyant market (up 13% in 90 days).
With this in mind, it’s worth taking a look at whether the company’s underlying fundamentals have been the drivers of its long-term performance, or whether there are some anomalies within them.
Investors in Oracle Financial Services Software OFSS
While the market is a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance.
An imperfect but simple way to consider how the market perception of a company has changed is to compare the change in earnings per share (EPS) to the share price movement.
During the five years of share price growth, Oracle Financial Services Software achieved compound earnings per share (EPS) growth of 9.6% per year. This EPS growth is lower than the 26% average annual increase in the share price.
So it’s reasonable to assume the market has a higher opinion of the business than it did five years ago. This isn’t necessarily surprising, given the five-year track record of earnings growth.
It’s worth noting that the CEO is paid less than the average at similar-sized companies. But while CEO remuneration is always worth checking, the more important question is whether the company can grow earnings going forward.
This free interactive report on Oracle Financial Services Software’s earnings, revenue and cash flow is a great starting point if you want to investigate the stock further.
A Different Approach
It’s good to see that Oracle Financial Services Software has rewarded shareholders with a total shareholder return of 171% in the last twelve months. And that’s including dividends. That’s better than the annualized return of 33% over half a decade, meaning the company has been performing better recently.
In the best-case scenario, this could indicate some real business momentum, meaning now could be a great time to delve deeper.
While it’s well worth considering the different impacts that market conditions can have on the share price, other factors are even more important.
To that end, you should be aware of the 2 warning signs we’ve spotted with Oracle Financial Services Software.
What about Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that takes into account the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs.
Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Oracle Financial Services Software’s TSR for the last 5 years was 318%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!