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By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Alfa Financial Software Holdings PLC (LON:ALFA), which is up 35%, over three years, soundly beating the market decline of 3.5% (not including dividends).

So let’s assess the underlying fundamentals over the last 3 years and see if they’ve moved in lock-step with shareholder returns.

Check out our latest analysis for Alfa Financial Software Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Alfa Financial Software Holdings was able to grow its EPS at 0.7% per year over three years, sending the share price higher. In comparison, the 10% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It’s not unusual to see the market ‘re-rate’ a stock, after a few years of growth.

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’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Alfa Financial Software Holdings’ earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Alfa Financial Software Holdings the TSR over the last 3 years was 65%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Pleasingly, Alfa Financial Software Holdings’ total shareholder return last year was 41%. That’s including the dividend. So this year’s TSR was actually better than the three-year TSR (annualized) of 18%. The improving returns to shareholders suggests the stock is becoming more popular with time. It’s always interesting to track share price performance over the longer term. But to understand Alfa Financial Software Holdings better, we need to consider many other factors. Even so, be aware that Alfa Financial Software Holdings is showing 1 warning sign in our investment analysis , you should know about…

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.