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Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term Banque Cantonale Vaudoise (VTX:BCVN) shareholders have enjoyed a 53% share price rise over the last half decade, well in excess of the market return of around 9.3% (not including dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 2.1%, including dividends.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During five years of share price growth, Banque Cantonale Vaudoise achieved compound earnings per share (EPS) growth of 4.5% per year. This EPS growth is slower than the share price growth of 8.9% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that’s hardly shocking given the track record of growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Banque Cantonale Vaudoise’s TSR for the last 5 years was 95%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Banque Cantonale Vaudoise provided a TSR of 2.1% over the last twelve months. But that was short of the market average. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 14% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Keeping this in mind, a solid next step might be to take a look at Banque Cantonale Vaudoise’s dividend track record. This free interactive graph is a great place to start.
Of course Banque Cantonale Vaudoise 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 CH 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.