Nasdaq
華爾街日報Fortis Healthcare (NSE:FORTIS) shareholders have earned a 42% CAGR over the last five years
Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Fortis Healthcare Limited (NSE:FORTIS) share price is up a whopping 467% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. We note the stock price is up 1.3% in the last seven days.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years of share price growth, Fortis Healthcare moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. 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. Indeed, the Fortis Healthcare share price has gained 211% in three years. Meanwhile, EPS is up 26% per year. This EPS growth is lower than the 46% average annual increase in the share price over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Fortis Healthcare has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Fortis Healthcare's TSR for the last 5 years was 470%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that Fortis Healthcare has rewarded shareholders with a total shareholder return of 28% in the last twelve months. And that does include the dividend. However, the TSR over five years, coming in at 42% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. Before deciding if you like the current share price, check how Fortis Healthcare scores on these 3 valuation metrics.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian 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.