Amkor Technology, Inc. (NASDAQ:AMKR) shareholders have seen the share price descend 17% over the month. But that doesn’t undermine the rather lovely longer-term return, if you measure over the last three years. In fact, the share price is up a full 100% compared to three years ago. To some, the recent share price pullback wouldn’t be surprising after such a good run. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
While the stock has fallen 7.6% this week, it’s worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
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 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, Amkor Technology achieved compound earnings per share growth of 134% per year. This EPS growth is higher than the 26% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We’d venture the lowish P/E ratio of 6.40 also reflects the negative sentiment around the stock.
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Amkor Technology’s earnings, revenue and cash flow.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Amkor Technology, it has a TSR of 104% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
We regret to report that Amkor Technology shareholders are down 33% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 17%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Longer term investors wouldn’t be so upset, since they would have made 13%, each year, over five years. 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.