Did Oil Search’s (ASX:OSH) Share Price Deserve to Gain 11%?

Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the Oil Search Limited (ASX:OSH) share price is up 11% in the last three years, that falls short of the market return. Zooming in, the stock is up just 1.8% in the last year.

See our latest analysis for Oil Search

To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

Oil Search became profitable within the last three years. So we would expect a higher share price over the period.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

ASX:OSH Past and Future Earnings, January 20th 2020
ASX:OSH Past and Future Earnings, January 20th 2020

It is of course excellent to see how Oil Search has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Oil Search stock, you should check out this FREE detailed 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. 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. We note that for Oil Search the TSR over the last 3 years was 16%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Oil Search shareholders are up 4.5% for the year (even including dividends) . But that return falls short of the market. On the bright side, that’s still a gain, and it’s actually better than the average return of 1.7% over half a decade It is possible that returns will improve along with the business fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We’ve spotted 2 warning signs for Oil Search you should be aware of.

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.