Pan African Resources (LON: PAF) rewarded its shareholders with an exceptional 323% total return on their investment
The worst outcome, after buying a company’s stock (assuming there is no leverage), would be to lose all the money you invested. But on the bright side, you can earn well over 100% on a really good stock. For example, the price of Pan-African Resources PLC (LON: PAF) the stock has risen 259% over the past five years. On top of that, the share price rose 45% in about a quarter. The company recently released its financial results; you can catch up with the last numbers by reading our company report.
In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).
Over half a decade, Pan African Resources has managed to increase its earnings per share to 21% per year. This EPS growth is lower than the 29% average annual increase in the share price. So it’s fair to assume that the market has a better opinion of the company than it did five years ago. This isn’t necessarily surprising given the track record of five-year earnings growth.
You can see how EPS has changed over time in the image below (click on the graph to see the exact values).
We consider it positive that insiders have made significant purchases over the past year. Even so, future profits will be much more important to whether current shareholders make money. Dive deeper into revenue by checking out this interactive graph from Pan African Resources’ profit, revenue and cash flow.
What about dividends?
When considering investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spinoff. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. In the case of Pan African Resources, it has a TSR of 323% for the past 5 years. This exceeds the return on its share price that we mentioned earlier. And there’s no price guessing that dividend payments are a big part of the reason for the discrepancy!
A different perspective
It is nice to see that Pan African Resources shareholders have received a total shareholder return of 121% over the past year. Of course, this includes the dividend. As the 1-year TSR is better than the 5-year TSR (the latter standing at 33% per year), it seems that the stock’s performance has improved in recent times. Since the stock price momentum remains strong, it might be worth taking a closer look at the stock lest you miss an opportunity. I find it very interesting to look at the long-term share price as an indicator of company performance. But to really get an overview, we have to take other information into account as well. For example, we discovered 4 warning signs for Pan African Resources which you should know before investing here.
There are many other companies that have insiders who buy stocks. You probably do not want to miss it free list of growing companies that insiders buy.
Please note that the market returns quoted in this article reflect the market weighted average returns of stocks currently traded on UK stock exchanges.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.