Alpha Financial Markets Consulting (LON:AFM) pulls back 7.6% this week, but still delivers shareholders stellar 25% CAGR over 5 years

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For example, the Alpha Financial Markets Consulting plc (LON:AFM) share price has soared 170% in the last half decade. Most would be very happy with that. And in the last month, the share price has gained 17%. We note that Alpha Financial Markets Consulting reported its financial results recently; luckily, you can catch up on the latest revenue and profit numbers in our company report.

Although Alpha Financial Markets Consulting has shed UK£42m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Alpha Financial Markets Consulting

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the five years of share price growth, Alpha Financial Markets Consulting moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Alpha Financial Markets Consulting share price has gained 111% in three years. In the same period, EPS is up 27% per year. This EPS growth is reasonably close to the 28% average annual increase in the share price (over three years, again). That suggests that the market sentiment around the company hasn't changed much over that time. Arguably the share price is reflecting the earnings per share.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Alpha Financial Markets Consulting has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Alpha Financial Markets Consulting 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). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Alpha Financial Markets Consulting the TSR over the last 5 years was 202%, 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 Alpha Financial Markets Consulting shareholders have received a total shareholder return of 12% over the last year. That's including the dividend. Having said that, the five-year TSR of 25% a year, is even better. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Alpha Financial Markets Consulting , and understanding them should be part of your investment process.

But note: Alpha Financial Markets Consulting may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.

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