These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more than that. For example, the Solid State plc (LON:SOLI) share price is up 48% in the last year, clearly besting the market return of around 4.0% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Having said that, the longer term returns aren’t so impressive, with stock gaining just 15% in three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Solid State was able to grow EPS by 18% in the last twelve months. The share price gain of 48% certainly outpaced the EPS growth. So it’s fair to assume the market has a higher opinion of the business than it a year ago.
The graphic below depicts how EPS has changed over time.
We know that Solid State has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Solid State will grow revenue in the future.
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 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. In the case of Solid State, it has a TSR of 53% for the last year. 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
We’re pleased to report that Solid State shareholders have received a total shareholder return of 53% over one year. That’s including the dividend. Notably the five-year annualised TSR loss of 5.3% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
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.