Analysis of the Growth of Sims Ltd in the Last 5 Years

In today’s investing landscape, investors are constantly on the lookout for stocks that outperform the market average. While active stock picking comes with its own set of risks and requires diversification, it can also yield significant profits. One such success story is Sims Limited (ASX: SGM), whose shareholders have enjoyed a 39% increase in stock prices over the past five years, surpassing the market average growth by approximately 27% (excluding dividends).

In the past week, Sims investors have experienced significant gains. This prompts us to examine whether the company’s underlying fundamentals have contributed to its five-year growth. Let’s analyze the latest research on Sims. According to Warren Buffett, “Ships will sail around the world, but the Flat Earth Society will thrive. There will continue to be large discrepancies between price and value in the market…”

One way to assess changes in sentiment around a company is to compare earnings per share (EPS) with the change in stock price. Over the course of five years of stock price growth, Sims has transformed from a loss-making company into a profitable one. This is generally regarded as a positive change and would have been expected to drive up the stock price. The chart below illustrates Sims Ltd’s earnings per share (click to see the exact figures).

In addition, the significant buybacks by internal investors in the last three months are also a positive signal. However, to make a decision on buying or selling stocks, we always recommend thoroughly examining historical growth trends, available here.

But what about dividends? When evaluating investment returns, it is important to understand the difference between total shareholder return (TSR) and annual stock returns. TSR calculates the overall return that includes the value of dividends paid (accounting for reinvesting each dividend received) and the calculated value of any capitalizations and spin-offs. Therefore, for companies that pay generous dividends, TSR is often much higher than the annual stock returns. We note that TSR for Sims over the past 5 years was 63%, which is higher than the aforementioned annual stock return. The dividends paid by the company significantly increased the total return for shareholders.

In summary, although the broader market gained about 5.4% last year, Sims shareholders experienced a loss of 6.0% (including dividends). Even stocks of good companies sometimes lose value, so before showing interest in them, it is worth seeing improvements in the underlying business indicators. What is encouraging is that long-term shareholders have achieved returns of 10% per year over the past five years. If the fundamental data continues to indicate long-term sustainable growth, the current sell-off may present good opportunities in the longer term.

The conclusions are clear – to gain a full understanding, we must rely not only on long-term stock price growth but also on other information. We must always consider investment risks, which is why we have discovered two warnings about Sims, understanding them should be part of the investment process. Sims is not the only company where investors are buying stocks. Therefore, it is worth taking a look at our free list of growing companies that are subject to internal investor purchases.

Please note that the market returns mentioned in this article reflect the current average market returns for stocks listed on Australian exchanges. Valuation is complex, but we help simplify it. Check out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions, and financial health.

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The source of the article is from the blog motopaddock.nl