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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the ClearView Wealth Limited (ASX:CVW) share price has soared 125% in the last 1 year. Most would be very happy with that, especially in just one year! On top of that, the share price is up 45% in about a quarter. On the other hand, longer term shareholders have had a tougher run, with the stock falling 23% in three years.
So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the last year, ClearView Wealth actually saw its earnings per share drop 49%.
Given the share price gain, we doubt the market is measuring progress with EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We are skeptical of the suggestion that the 1.4% dividend yield would entice buyers to the stock. However the year on year revenue growth of 103% would help. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for 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. We note that for ClearView Wealth the TSR over the last 1 year was 129%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that ClearView Wealth shareholders have received a total shareholder return of 129% over one year. That's including the dividend. That certainly beats the loss of about 6% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with ClearView Wealth (at least 1 which is significant) , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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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