Monday, June 24, 2024

Solomon Technology’s (TWSE:2359) earnings growth rate lags the 121% CAGR delivered to shareholders

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We think that it’s fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. But when you hold the right stock for the right time period, the rewards can be truly huge. For example, the Solomon Technology Corporation (TWSE:2359) share price is up a whopping 865% in the last three years, a handsome return for long term holders. On top of that, the share price is up 304% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. It really delights us to see such great share price performance for investors.

In light of the stock dropping 7.5% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company’s positive three-year return.

Check out our latest analysis for Solomon Technology

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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.

During three years of share price growth, Solomon Technology achieved compound earnings per share growth of 109% per year. Notably, the 113% average annual share price gain matches up nicely with the EPS growth rate. This observation indicates that the market’s attitude to the business hasn’t changed all that much. Quite to the contrary, the share price has arguably reflected the EPS growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

TWSE:2359 Earnings Per Share Growth June 10th 2024

Dive deeper into Solomon Technology’s key metrics by checking this interactive graph of Solomon Technology’s earnings, revenue and cash flow.

What About Dividends?

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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Solomon Technology the TSR over the last 3 years was 975%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It’s nice to see that Solomon Technology shareholders have received a total shareholder return of 431% over the last year. And that does include the dividend. That’s better than the annualised return of 56% 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 Solomon Technology better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 1 warning sign with Solomon Technology , and understanding them should be part of your investment process.

We will like Solomon Technology 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 Taiwanese exchanges.

Valuation is complex, but we’re helping make it simple.

Find out whether Solomon Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

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