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Investing in stocks often involves seeking those that outperform the market average. One way to achieve higher returns is by identifying undervalued businesses. For instance, Brickworks Limited (ASX: BKW) witnessed a 63% surge in share price over the last 5 years, surpassing the market return of around 28% (excluding dividends). However, recent returns, including dividends, have shown a less impressive 22% gain in the last year.
Understanding the fundamentals of a company is crucial to assess if the long-term shareholder return aligns with the underlying business performance.
Key Points:
- Market Performance vs. Fundamental Analysis: Comparing a company's earnings per share (EPS) growth and its share price changes over time helps gauge investor sentiment towards the company.
- Brickworks' Performance Analysis: Brickworks managed a 17% yearly growth in EPS over five years, outperforming its 10% annual share price increase during the same period. This suggests a cautious market sentiment, evident in its relatively low P/E ratio of 10.18.
- Total Shareholder Return (TSR) and Dividends: Considering the TSR, which accounts for cash dividends and other factors, Brickworks' TSR for the last 5 years stood at 89%, outpacing the share price return. Dividends contributed significantly to the total shareholder return.
- Recent Shareholder Returns and Future Prospects: Despite the positive 22% total shareholder return over the last year, there's been a 14% annual TSR over five years, hinting at recent positive sentiment around Brickworks. However, considering various market impacts and identified warning signs, a closer inspection before making investment decisions is recommended.
Conclusion
Brickworks Limited's stock performance has shown positive shareholder returns, indicating recent optimism. However, with identified cautionary signs and varied market impacts, a thorough assessment is essential before making investment decisions.
