By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the EnBW Energie Baden-Württemberg AG (FRA:EBK) share price is up 36% in the last three years, clearly besting than the market return of around 9.8% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 13%, including dividends.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Over the last three years, EnBW Energie Baden-Württemberg failed to grow earnings per share, which fell 14% (annualized). This means it’s unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.
The modest 1.7% dividend yield is unlikely to be propping up the share price. It may well be that EnBW Energie Baden-Württemberg revenue growth rate of 5.0% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder’s faith in better days ahead will be rewarded.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
If you are thinking of buying or selling EnBW Energie Baden-Württemberg stock, you should check out this FREE detailed report on its balance sheet.
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 discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for EnBW Energie Baden-Württemberg the TSR over the last 3 years was 42%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that EnBW Energie Baden-Württemberg shareholders have received a total shareholder return of 13% over the last year. That’s including the dividend. That gain is better than the annual TSR over five years, which is 3.5%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Before forming an opinion on EnBW Energie Baden-Württemberg you might want to consider these 3 valuation metrics.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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.