Investors in Softcat (LON:SCT) have made a incredible return of 300% over the past five years




  • In Business
  • 2022-08-10 08:25:06Z
  • By Simply Wall St.
 

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Softcat plc (LON:SCT) which saw its share price drive 242% higher over five years. In the last week the share price is up 1.0%.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Softcat

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over half a decade, Softcat managed to grow its earnings per share at 22% a year. This EPS growth is slower than the share price growth of 28% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Softcat has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Softcat will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Softcat, it has a TSR of 300% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 7.8% in the twelve months, Softcat shareholders did even worse, losing 30% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 32%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Softcat better, we need to consider many other factors. Even so, be aware that Softcat is showing 1 warning sign in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

COMMENTS

More Related News

Gentex
Gentex's (NASDAQ:GNTX) Dividend Will Be $0.12

Gentex Corporation ( NASDAQ:GNTX ) has announced that it will pay a dividend of $0.12 per share on the 19th of October...

Bird Construction (TSE:BDT) Is Paying Out A Dividend Of CA$0.0325
Bird Construction (TSE:BDT) Is Paying Out A Dividend Of CA$0.0325

Bird Construction Inc.'s ( TSE:BDT ) investors are due to receive a payment of CA$0.0325 per share on 18th of November...

The Non-Executive Chairman of Grafton Group plc (LON:GFTU), Michael Roney, Just Bought 35% More Shares
The Non-Executive Chairman of Grafton Group plc (LON:GFTU), Michael Roney, Just Bought 35% More Shares

Even if it's not a huge purchase, we think it was good to see that Michael Roney, the Non-Executive Chairman of Grafton...

The one-year underlying earnings growth at Cousins Properties (NYSE:CUZ) is promising, but the shareholders are still in the red over that time
The one-year underlying earnings growth at Cousins Properties (NYSE:CUZ) is promising, but the shareholders are still in the red over that time

It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both...

Murphy USA
Murphy USA's (NYSE:MUSA) five-year earnings growth trails the 31% YoY shareholder returns

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business