A simple way to profit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could earn more than that. For instance, Telekom Malaysia Berhad (KLSE:TM) shareholders have seen the stock price rise 52% over three years, well above the market decline (4.5%, excluding dividends).
As it has been a good week for Telekom Malaysia Berhad shareholders, let’s take a look at the trend in longer-term fundamentals.
See our latest analysis for Telekom Malaysia Berhad
To paraphrase Benjamin Graham: in the short term, the market is a voting machine, but in the long term, it is a weighing machine. An imperfect but reasonable way to gauge changing sentiment around a company is to compare earnings per share (EPS) with the stock price.
Telekom Malaysia Berhad was able to increase its EPS by 43% per year over three years, driving up the share price. This EPS growth is greater than the average annual share price increase of 15%. We could therefore reasonably conclude that the market has cooled down on the stock.
You can see how EPS has changed over time in the image below (click on the graph to see the exact values).
We are pleased to report that the CEO is compensated more modestly than most CEOs of similarly capitalized companies. It’s always worth keeping an eye on CEO compensation, but a more important question is whether the company will grow its profits over the years. Before buying or selling a stock, we always recommend a careful review of historical growth trends, available here.
What about dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price performance. The TSR incorporates the value of any spin-offs or discounted capital increases, as well as any dividends, based on the assumption that dividends are reinvested. Arguably, TSR gives a more complete picture of the return generated by a stock. We note that for Telekom Malaysia Berhad the TSR over the past 3 years was 64%, which is better than the stock price return mentioned above. And there’s no price guessing that dividend payouts largely explain the divergence!
A different perspective
While the broader market lost around 0.07% in the twelve months, Telekom Malaysia Berhad shareholders fared even worse, losing 9.5% (even including dividends). However, it could simply be that the stock price was impacted by greater market jitters. It might be worth keeping an eye on the fundamentals, in case there is a good opportunity. Unfortunately, last year’s performance may point to unresolved challenges, given that it was worse than the 1.5% annualized loss over the past half-decade. Generally speaking, long-term stock price weakness can be a bad sign, although contrarian investors may want to seek out the stock in hopes of a turnaround. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Take for example the ubiquitous specter of investment risk. We have identified 2 warning signs with Telekom Malaysia Berhad, and understanding them should be part of your investment process.
Sure Telekom Malaysia Berhad may not be the best stock to buy. So you might want to see this free collection of growth values.
Please note that the market returns quoted in this article reflect the market-weighted average returns of the stocks currently trading on the MY exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.