Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term New Jersey Resources Corporation (NYSE:NJR) shareholders have enjoyed a 79% share price rise over the last half decade, well in excess of the market return of around 44% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 11% in the last year, 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. 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.
New Jersey Resources’s earnings per share are down 8.4% per year, despite strong share price performance over five years. Essentially, it doesn’t seem likely that investors are focused on EPS. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
The revenue reduction of 7.2% per year is not a positive. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.
Take a more thorough look at New Jersey Resources’s financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, New Jersey Resources’s TSR for the last 5 years was 106%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It’s good to see that New Jersey Resources has rewarded shareholders with a total shareholder return of 11% in the last twelve months. And that does include the dividend. However, the TSR over five years, coming in at 16% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
But note: New Jersey Resources 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 US exchanges.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.