By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, Element Fleet Management Corp. (TSE:EFN) shareholders have seen the share price rise 34% over three years, well in excess of the market return (2.1%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 15% , 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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over the last three years, Element Fleet Management failed to grow earnings per share, which fell 29% (annualized).
This means it's unlikely the market is judging the company based on earnings growth. 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 modest 2.0% dividend yield is unlikely to be propping up the share price. It may well be that Element Fleet Management revenue growth rate of 6.2% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Element Fleet Management stock, you should check out this free report showing analyst profit forecasts.
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. As it happens, Element Fleet Management's TSR for the last 3 years was 46%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Element Fleet Management shareholders have received a total shareholder return of 15% over the last year. Of course, that includes the dividend. That's better than the annualised return of 2% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 example, we've discovered 4 warning signs for Element Fleet Management that you should be aware of before investing here.
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 CA exchanges.
If you’re looking to trade Element Fleet Management, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email firstname.lastname@example.org.