If You Had Bought DEFAMA Deutsche Fachmarkt (ETR:DEF) Shares Three Years Ago You'd Have Earned 77% Returns

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, DEFAMA Deutsche Fachmarkt AG (ETR:DEF) shareholders have seen the share price rise 77% over three years, well in excess of the market return (17%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 31% , including dividends .

See our latest analysis for DEFAMA Deutsche Fachmarkt

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 three years of share price growth, DEFAMA Deutsche Fachmarkt achieved compound earnings per share growth of 13% per year. In comparison, the 21% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that DEFAMA Deutsche Fachmarkt has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for DEFAMA Deutsche Fachmarkt the TSR over the last 3 years was 86%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the market return was 28% in the last year, DEFAMA Deutsche Fachmarkt returned 31% to shareholders. Most would be happy with a gain, and it helps that the year's return is actually better than the average return of 23% over the last three years, implying that the company is doing better recently. We're certainly happy to see the uptick and we hope the underlying business goes on to justify the improved valuation. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with DEFAMA Deutsche Fachmarkt (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

We will like DEFAMA Deutsche Fachmarkt better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE exchanges.

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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. 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.
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