TKH Group’s (AMS:TWEKA) five-year earnings growth trails the notable shareholder returns

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you’d generally like to see the share price rise faster than the market. But TKH Group N.V. (AMS:TWEKA) has fallen short of that second goal, with a share price rise of 18% over five years, which is below the market return. Zooming in, the stock is actually down 2.0% in the last year.

Since the stock has added €114m 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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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Over half a decade, TKH Group managed to grow its earnings per share at 3.0% a year. This EPS growth is reasonably close to the 3% average annual increase in the share price. That suggests that the market sentiment around the company hasn’t changed much over that time. Rather, the share price has approximately tracked EPS growth.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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 TKH Group the TSR over the last 5 years was 40%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

TKH Group shareholders are up 2.0% for the year (even including dividends). But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 7% per year for five years. It’s quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Take risks, for example – TKH Group has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

We will like TKH Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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