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Highlights
- Service Stream Limited's (SSM) share price soared over 100% in three years.
- Revenue growth outpaces EPS decline, indicating market optimism.
- Total Shareholder Return (TSR) exceeds share price growth due to dividends.
The most any investor stands to lose on a stock is 100% of their investment, assuming no leverage is used. However, the potential upside is significantly higher if the company performs well. This is evident in the case of Service Stream Limited (ASX:SSM), whose share price has impressively doubled—rising by 102% over the past three years. This type of return is undoubtedly noteworthy. Moreover, in the last month, the share price has seen a 13% increase, reflecting a solid week-long performance.
To better understand the drivers behind long-term shareholder returns, it's crucial to examine the fundamentals of Service Stream. Drawing upon the wisdom of Benjamin Graham, the market behaves like a voting machine in the short term but transforms into a weighing machine over time. Analyzing the company's earnings per share (EPS) in relation to its share price movement offers insight into market perceptions. Despite the share price growth, Service Stream's EPS has actually decreased by 9.7% annually over the same period. Thus, it's unlikely that the market is using EPS as the main indicator of the company's value, suggesting a look at alternative metrics.
The revenue growth, which stands at 32% annually, might be perceived as an indicator of the company's expansion, suggesting that Service Stream is being managed for long-term success. Shareholders today may find this encouraging.
While assessing returns, investors often weigh both share price appreciation and total shareholder return (TSR). TSR accounts for dividends, spin-offs, and any discounted capital raisings, assuming dividends are reinvested. For Service Stream, the TSR amounts to 115% over the past three years, which surpasses the mentioned share price growth largely due to dividend distributions.
It's noteworthy that shareholders have experienced a robust 78% TSR over the recent twelve months, encompassing dividend contributions. However, the five-year TSR is not as optimistic, recording an annualized loss of 1.6%. Despite this, the recent performance suggests an improvement in the company's prospects.
While long-term share price analysis provides a proxy for business performance, it's essential to consider additional factors. For instance, potential investors may want to note some warning signs associated with Service Stream. However, diversified options do exist, and it might be useful to explore a curated list of companies demonstrating past and forecasted earnings growth.
