We think that it's fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. You won't get it right every time, but when you do, the returns can be truly splendid. Take, for example, the Scorpio Tankers Inc. (NYSE:STNG) share price, which skyrocketed 320% over three years. On top of that, the share price is up 13% in about a quarter. But this could be related to the strong market, which is up 9.1% in the last three months.
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.
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. 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.
Scorpio Tankers was able to grow its EPS at 85% per year over three years, sending the share price higher. This EPS growth is higher than the 61% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.46.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Scorpio Tankers has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Scorpio Tankers stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Scorpio Tankers' TSR for the last 3 years was 345%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Scorpio Tankers' TSR for the year was broadly in line with the market average, at 31%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 26%. 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 Scorpio Tankers better, we need to consider many other factors. For instance, we've identified 2 warning signs for Scorpio Tankers (1 can't be ignored) that you should be aware of.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.