Alcon's (VTX:ALC) investors will be pleased with their respectable 41% return over the last five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Alcon Inc. (VTX:ALC) share price is up 40% in the last 5 years, clearly besting the market return of around 5.1% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 17%, including dividends.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

See our latest analysis for Alcon

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 the last half decade, Alcon became profitable. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Alcon share price is down 5.3% in the last three years. During the same period, EPS grew by 51% each year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -1.8% per year.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Alcon has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Alcon's financial health with this free report on its balance sheet.

A Different Perspective

It's good to see that Alcon has rewarded shareholders with a total shareholder return of 17% in the last twelve months. That's including the dividend. That's better than the annualised return of 7% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before forming an opinion on Alcon you might want to consider these 3 valuation metrics.

Of course Alcon 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 Swiss exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.