AFT Pharmaceuticals (NZSE:AFT) shareholders have earned a 13% CAGR over the last five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term AFT Pharmaceuticals Limited (NZSE:AFT) shareholders have enjoyed a 83% share price rise over the last half decade, well in excess of the market return of around 1.7% (not including dividends).

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for AFT Pharmaceuticals

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the five years of share price growth, AFT Pharmaceuticals moved from a loss to profitability. That's generally thought to be a genuine positive, so we would expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the AFT Pharmaceuticals stock price is 21% lower in the last three years. During the same period, EPS grew by 55% each year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -7% per year.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth

We know that AFT Pharmaceuticals has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at AFT Pharmaceuticals' financial health with this free report on its balance sheet.

A Different Perspective

AFT Pharmaceuticals shareholders are down 1.8% over twelve months (even including dividends), which isn't far from the market return of -1.7%. Longer term investors wouldn't be so upset, since they would have made 13%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. It's always interesting to track share price performance over the longer term. But to understand AFT Pharmaceuticals better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with AFT Pharmaceuticals .

Of course AFT Pharmaceuticals 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 New Zealander 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.