Those who invested in Ricegrowers (ASX:SGLLV) five years ago are up 116%

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Ricegrowers Limited (ASX:SGLLV) shareholders have enjoyed a 60% share price rise over the last half decade, well in excess of the market return of around 36% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 29% in the last year , including dividends .

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for Ricegrowers

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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Ricegrowers actually saw its EPS drop 17% per year.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

There's no sign of growing dividends, which might have explained the resilient share price. The revenue decline of 1.9% wouldn't have helped. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

This free interactive report on Ricegrowers' balance sheet strength is a great place to start, if you want to investigate the stock further.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Ricegrowers the TSR over the last 5 years was 116%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Ricegrowers shareholders have received returns of 29% over twelve months (even including dividends), which isn't far from the general market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 17% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. It's always interesting to track share price performance over the longer term. But to understand Ricegrowers better, we need to consider many other factors. Take risks, for example - Ricegrowers has 2 warning signs we think you should be aware of.

But note: Ricegrowers 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 AU exchanges.

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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