While Yellow Cake plc (LON:YCA) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 17% in the last quarter. But don’t let that distract from the very nice return generated over three years. To wit, the share price did better than an index fund, climbing 67% during that period.
So let’s assess the underlying fundamentals over the last 3 years and see if they’ve moved in lock-step with shareholder returns.
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. 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.
Over the last three years, Yellow Cake failed to grow earnings per share, which fell 100% (annualized). In this instance, recent extraordinary items impacted the earnings.
This means it’s unlikely the market is judging the company based on earnings growth. Therefore, we think it’s worth considering other metrics as well.
It may well be that Yellow Cake revenue growth rate of 106% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder’s faith in better days ahead will be rewarded.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Yellow Cake
A Different Perspective
It’s nice to see that Yellow Cake shareholders have gained 31% (in total) over the last year. That’s better than the annualized TSR of 19% over the last three years. The improving returns to shareholders suggests the stock is becoming more popular with time. It’s always interesting to track share price performance over the longer term. But to understand Yellow Cake better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we’ve spotted with Yellow Cake .
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here