By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Ottakringer Getränke AG (VIE:OTS), which is up 40%, over three years, soundly beating the market return of 21% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 14% in the last year , including dividends .
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Ottakringer Getränke was able to grow its EPS at 1.9% per year over three years, sending the share price higher. This EPS growth is lower than the 12% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. That’s not necessarily surprising considering the three-year track record of earnings growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Ottakringer Getränke’s key metrics by checking this interactive graph of Ottakringer Getränke’s earnings, revenue and cash flow.
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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Ottakringer Getränke the TSR over the last 3 years was 50%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Ottakringer Getränke shareholders have received a total shareholder return of 14% over the last year. That’s including the dividend. That gain is better than the annual TSR over five years, which is 8.6%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. For instance, we’ve identified 2 warning signs for Ottakringer Getränke (1 doesn’t sit too well with us) that you should be aware of.
Of course Ottakringer Getränke may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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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