Saratoga Investment (NYSE:SAR) shareholders have earned a 19% CAGR over the last five years

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21 hours ago

If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. But Saratoga Investment Corp. (NYSE:SAR) has fallen short of that second goal, with a share price rise of 45% over five years, which is below the market return. But if you include dividends then the return is market-beating. Over the last twelve months the stock price has risen a very respectable 5.1%.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During five years of share price growth, Saratoga Investment actually saw its EPS drop 21% per year.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
In fact, the dividend has increased over time, which is a positive. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 24% per year might also encourage buyers.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Saratoga Investment has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Saratoga Investment's TSR for the last 5 years was 144%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
It's nice to see that Saratoga Investment shareholders have received a total shareholder return of 21% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 19% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. For example, we've discovered 3 warning signs for Saratoga Investment (1 is potentially serious!) that you should be aware of before investing here.
But note: Saratoga Investment may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
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