Why Have Super Group Ltd’s Shares Gained 30% In Value In 5 Years?

I think it is fair to say that most investors want to find stocks that can increase in value in the future, either from an appreciation in the share price or through the distribution of dividends.

So, it’s worth keeping in mind the idea that both factors – price appreciation and dividends – are generally derived from the same source, a company’s profit.

This profit is, in turn, driven by a company’s business performance. In general, companies with strong businesses exhibit sustainable growth, high margins, high returns on equity, and low leverage (leverage is a gauge of how much debt a company’s taking on).

In here, I want to look at the business performance of instant coffee manufacturer Super Group Ltd (SGX: S10) in its last five fiscal years and track the total return of its stock. The total return takes into account the gains from reinvested dividends.

So, here’s a table showing some of Super Group’s business numbers from 2011 to 2015:

Source: S&P Global Market Intelligence

What we can see is that Super Group’s business had been growing rapidly from 2011 to 2013 before a decline started. In all, revenue has grown by a total of 15% from 2011 to 2015. But, its earnings per share has declined by 24%.

For the period under study, Super Group’s return on equity has also been falling, from 17.6% to just 9.3%. Its gearing though, has been kept at a low level over that period.

Over the last five years, Super Group’s share price has climbed by a total of 15%. When reinvested dividends are factored in, the total return vaults to 30%.

Super Group’s experience highlights two important ideas in investing. First, a stock’s price is often driven by the performance of its business over the long-term; Super Group’s stock price had moved up by just 15% in five years. Second, dividends can be an important component of a stock’s return.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Super Group. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.