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SM Entertainment (KOSDAQ:041510) shareholder returns have been enviable, earning 407% in 5 years

Simply Wall St · 03/21 21:22

Buying shares in the best businesses can build meaningful wealth for you and your family. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the SM Entertainment Co., Ltd. (KOSDAQ:041510) share price. It's 389% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 32% in about a quarter.

Since the stock has added ₩162b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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 five years of share price growth, SM Entertainment achieved compound earnings per share (EPS) growth of 33% per year. We note, however, that extraordinary items have impacted earnings. So the EPS growth rate is rather close to the annualized share price gain of 37% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. In fact, the share price seems to largely reflect the EPS growth.

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

earnings-per-share-growth
KOSDAQ:A041510 Earnings Per Share Growth March 21st 2025

It might be well worthwhile taking a look at our free report on SM Entertainment's earnings, revenue and cash flow.

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. In the case of SM Entertainment, it has a TSR of 407% 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

It's nice to see that SM Entertainment shareholders have received a total shareholder return of 31% over the last year. That's including the dividend. Having said that, the five-year TSR of 38% a year, is even better. 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 1 warning sign with SM Entertainment , and understanding them should be part of your investment process.

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