Yahoo Finance Kip McGrath Education Centres (ASX:KME) Has Rewarded Shareholders With An Exceptional 423% Total Return On Their Investment
We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. For example, the Kip McGrath Education Centres Limited (ASX:KME) share price is up a whopping 323% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 45% in about a quarter.
See our latest analysis for Kip McGrath Education Centres
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).
Over half a decade, Kip McGrath Education Centres managed to grow its earnings per share at 7.2% a year. This EPS growth is slower than the share price growth of 33% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Kip McGrath Education Centres' earnings, revenue and cash flow.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Kip McGrath Education Centres the TSR over the last 5 years was 423%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Kip McGrath Education Centres shareholders have received a total shareholder return of 18% over the last year. Of course, that includes the dividend. However, that falls short of the 39% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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. Even so, be aware that Kip McGrath Education Centres is showing 6 warning signs in our investment analysis , and 1 of those is potentially serious...
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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. 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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