By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Eli Lilly and Company (NYSE:LLY), which is up 86%, over three years, soundly beating the market return of 40% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 33% , including dividends .
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Eli Lilly was able to grow its EPS at 39% per year over three years, sending the share price higher. This EPS growth is higher than the 23% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Eli Lilly’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Eli Lilly, it has a TSR of 99% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Eli Lilly shareholders have received a total shareholder return of 33% over the last year. That’s including the dividend. That’s better than the annualised return of 15% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example – Eli Lilly has 1 warning sign we think you should be aware of.
Eli Lilly is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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. 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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