By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, ALS Limited (ASX:ALQ) shareholders have seen the share price rise 95% over three years, well in excess of the market return (21%, not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 8.0% 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.
ALS became profitable within the last three years. That would generally be considered a positive, so we’d expect the share price to be up.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on ALS’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 ALS the TSR over the last 3 years was 110%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
ALS shareholders are up 8.0% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 5.3% per year over five year. This suggests the company might be improving over time. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
ALS is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.