Optimism for Sonova Holding (VTX:SOON) has grown this past week, despite one-year decline in earnings

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more than that. To wit, the Sonova Holding AG (VTX:SOON) share price is 48% higher than it was a year ago, much better than the market return of around 10% (not including dividends) in the same period. That's a solid performance by our standards! In contrast, the longer term returns are negative, since the share price is 7.9% lower than it was three years ago.

Since it's been a strong week for Sonova Holding shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Sonova Holding

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 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 year, Sonova Holding actually saw its earnings per share drop 6.3%.

So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

We are skeptical of the suggestion that the 1.4% dividend yield would entice buyers to the stock. Revenue was pretty stable on last year, so deeper research might be needed to explain the share price rise.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Sonova Holding is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Sonova Holding in this interactive graph of future profit estimates.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Sonova Holding, it has a TSR of 50% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Sonova Holding shareholders have received a total shareholder return of 50% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 8% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Sonova Holding better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Sonova Holding , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.