For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. Don’t believe it? Then look at the PGF Capital Berhad (KLSE:PGF) share price. It’s 346% higher than it was five years ago. If that doesn’t get you thinking about long term investing, we don’t know what will. It’s down 3.2% in the last seven days.

So let’s assess the underlying fundamentals over the last 5 years and see if they’ve moved in lock-step with shareholder returns.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

During five years of share price growth, PGF Capital Berhad achieved compound earnings per share (EPS) growth of 54% per year. The EPS growth is more impressive than the yearly share price gain of 35% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.46.

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 PGF Capital Berhad has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at PGF Capital Berhad’s financial health with this free report on its balance sheet.

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of PGF Capital Berhad, it has a TSR of 369% 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!

We regret to report that PGF Capital Berhad shareholders are down 15% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 7.4%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 36% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It’s always interesting to track share price performance over the longer term. But to understand PGF Capital Berhad better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for PGF Capital Berhad (1 is a bit concerning!) that you should be aware of before investing here.