Did Forterra’s (LON:FORT) Share Price Deserve to Gain 69%?

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Forterra plc (LON:FORT) share price is up 69% in the last three years, clearly besting the market return of around 3.2% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 32% in the last year , including dividends .

See our latest analysis for Forterra

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 three years of share price growth, Forterra achieved compound earnings per share growth of 111% per year. This EPS growth is higher than the 19% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

LSE:FORT Past and Future Earnings, February 10th 2020
LSE:FORT Past and Future Earnings, February 10th 2020

It is of course excellent to see how Forterra has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Forterra’s financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Forterra’s TSR for the last 3 years was 87%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It’s nice to see that Forterra shareholders have gained 32% (in total) over the last year. And yes, that does include the dividend. That gain actually surpasses the 23% TSR it generated (per year) over 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 Forterra better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for Forterra that you should be aware of before investing here.

But note: Forterra 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 GB exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.