Did Cogeco’s (TSE:CGO) Share Price Deserve to Gain 51%?

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One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Cogeco Inc. (TSE:CGO), which is up 51%, over three years, soundly beating the market return of 8.9% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 39% in the last year, including dividends.

Check out our latest analysis for Cogeco

To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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.

During the three years of share price growth, Cogeco actually saw its earnings per share (EPS) drop 3.9% per year. Given the share price resilience, we don’t think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. Therefore, it makes sense to look into other metrics.

It could be that the revenue growth of 4.6% per year is viewed as evidence that Cogeco is growing. If the company is being managed for the long term good, today’s shareholders might be right to hold on.

Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

TSX:CGO Income Statement, June 7th 2019
TSX:CGO Income Statement, June 7th 2019

This free interactive report on Cogeco’s balance sheet strength is a great place to start, if you want to investigate the stock further.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Cogeco’s TSR for the last 3 years was 62%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We’re pleased to report that Cogeco shareholders have received a total shareholder return of 39% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 10%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you would like to research Cogeco in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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 editorial-team@simplywallst.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.