Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term WCM Beteiligungs- und Grundbesitz-AG (ETR:WCMK) shareholders have enjoyed a 57% share price rise over the last half decade, well in excess of the market return of around 4.3% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 12% , including dividends .
Although WCM Beteiligungs- und Grundbesitz-AG has shed €60m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
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 five years of share price growth, WCM Beteiligungs- und Grundbesitz-AG actually saw its EPS drop 12% per year.
This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.
We doubt the modest 1.8% dividend yield is attracting many buyers to the stock. On the other hand, WCM Beteiligungs- und Grundbesitz-AG's revenue is growing nicely, at a compound rate of 37% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on WCM Beteiligungs- und Grundbesitz-AG's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for WCM Beteiligungs- und Grundbesitz-AG the TSR over the last 5 years was 75%, 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
We're pleased to report that WCM Beteiligungs- und Grundbesitz-AG shareholders have received a total shareholder return of 12% over one year. Of course, that includes the dividend. However, the TSR over five years, coming in at 12% per year, is even more impressive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for WCM Beteiligungs- und Grundbesitz-AG (of which 1 shouldn't be ignored!) you should know about.
We will like WCM Beteiligungs- und Grundbesitz-AG 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. 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.