It’s nice to see the DCC plc (LON:DCC) share price up 11% in a week. But that doesn’t change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 33% in the last three years, falling well short of the market return.
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 the unfortunate three years of share price decline, DCC actually saw its earnings per share (EPS) improve by 4.7% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
After considering the numbers, we’d posit that the the market had higher expectations of EPS growth, three years back. But it’s possible a look at other metrics will be enlightening.
We note that, in three years, revenue has actually grown at a 11% annual rate, so that doesn’t seem to be a reason to sell shares. It’s probably worth investigating DCC further; while we may be missing something on this analysis, there might also be an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
DCC is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for DCC in this interactive graph of future profit estimates.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for DCC the TSR over the last 3 years was -29%, 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
We regret to report that DCC shareholders are down 27% for the year (even including dividends) . Unfortunately, that’s worse than the broader market decline of 23%. 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 4.8%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 – DCC has 3 warning signs (and 1 which is potentially serious) we think you should know about.
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 GB 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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