One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at DO & CO Aktiengesellschaft (VIE:DOC), which is up 38%, over three years, soundly beating the market return of 23% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 7.4% , including dividends .
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 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.
DO & CO was able to grow its EPS at 1.2% per year over three years, sending the share price higher. This EPS growth is lower than the 11% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
While share prices often depend primarily on earnings, they can be sensitive to an investment’s risk level as well. For example, we’ve discovered 1 warning sign for DO & CO which any shareholder or potential investor should be aware of.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of DO & CO, it has a TSR of 43% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
DO & CO provided a TSR of 7.4% over the last twelve months. But that was short of the market average. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 7.5% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Is DO & CO cheap compared to other companies? These 3 valuation measures might help you decide.
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 AT exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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