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, Pan American Silver Corp. (TSE:PAAS) shareholders have seen the share price rise 23% over three years, well in excess of the market return (16%, not including dividends).
We don’t think that Pan American Silver’s modest trailing twelve month profit has the market’s full attention at the moment. We think revenue is probably a better guide. Many high growth companies focus on growing revenue before profits, but if revenue is the focus, it really needs to grow. That’s because it’s hard for shareholders to have confidence a company will grow profits significantly if it isn’t growing revenue.
Over the last three years Pan American Silver has grown its revenue at 7.2% annually. That’s not a very high growth rate considering it doesn’t make profits. The modest growth is probably broadly reflected in the share price, which is up 7.1%, per year over 3 years. The real question is when the business will generate profits, and how quickly they will grow. In this sort of situation it can be worth putting the stock on your watchlist. If it can become profitable, then even moderate revenue growth could grow profits quickly.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free report showing analyst forecasts should help you form a view on Pan American Silver
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Pan American Silver’s TSR for the last 3 years was 25%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Investors in Pan American Silver had a tough year, with a total loss of 13% (including dividends), against a market gain of about 3.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 3.9% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Pan American Silver by clicking this link.
Pan American Silver 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 CA 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 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. Thank you for reading.