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 Dev Information Technology Limited (NSE:DEVIT) share price is up a whopping 808% in the last half decade, a handsome return for long term holders. If that doesn’t get you thinking about long term investing, we don’t know what will. On top of that, the share price is up 19% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 20% in 90 days). It really delights us to see such great share price performance for investors.
After a strong gain in the past week, it’s worth seeing if longer term returns have been driven by improving fundamentals.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Dev Information Technology achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is lower than the 55% average annual increase in the share price. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. That’s not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 45.63.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Dev Information Technology the TSR over the last 5 years was 826%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Dev Information Technology shareholders have received a total shareholder return of 56% over the last year. And that does include the dividend. However, that falls short of the 56% TSR per annum it has made for shareholders, each year, over five years. It’s always interesting to track share price performance over the longer term. But to understand Dev Information Technology better, we need to consider many other factors. For instance, we’ve identified 3 warning signs for Dev Information Technology that you should be aware of.