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Introducing Senetas (ASX:SEN), A Stock That Climbed 65% In The Last Five Years

Simply Wall St

Senetas Corporation Limited (ASX:SEN) shareholders might be concerned after seeing the share price drop 27% in the last quarter. But that doesn't change the fact that the returns over the last five years have been pleasing. Its return of 65% has certainly bested the market return!

Check out our latest analysis for Senetas

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Senetas's earnings per share are down 13% per year, despite strong share price performance over five years. The impact of extraordinary items on earnings, in the last year, partially explain the diversion. Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.8% dividend yield is attracting many buyers to the stock. On the other hand, Senetas's revenue is growing nicely, at a compound rate of 9.6% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

ASX:SEN Income Statement, April 15th 2019

Take a more thorough look at Senetas's financial health with this free report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Senetas, it has a TSR of 72% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in Senetas had a tough year, with a total loss of 45% (including dividends), against a market gain of about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

We will like Senetas better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.