The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For instance the Korea Electric Power Corporation (KRX:015760) share price is 134% higher than it was three years ago. Most would be happy with that. Also pleasing for shareholders was the 32% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 22% in 90 days).
Although Korea Electric Power has shed ₩1.2t from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
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...' 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.
During three years of share price growth, Korea Electric Power 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.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Korea Electric Power has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Korea Electric Power stock, you should check out this FREE detailed report on its balance sheet.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Korea Electric Power's TSR for the last 3 years was 137%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
We're pleased to report that Korea Electric Power shareholders have received a total shareholder return of 133% over one year. And that does include the dividend. That's better than the annualised return of 15% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Korea Electric Power better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Korea Electric Power you should know about.
For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South Korean exchanges.
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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.