One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Howden Joinery Group Plc (LON:HWDN) shareholders have seen the share price rise 53% over three years, well in excess of the market decline (19%, not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 13% in the last year , including dividends .
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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During the three years of share price growth, Howden Joinery Group actually saw its earnings per share (EPS) drop 7.2% per year.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
It could be that the revenue growth of 3.5% per year is viewed as evidence that Howden Joinery Group is growing. 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 company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Howden Joinery Group stock, you should check out this free report showing analyst profit forecasts.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Howden Joinery Group’s total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Howden Joinery Group shareholders, and that cash payout contributed to why its TSR of 61%, over the last 3 years, is better than the share price return.
A Different Perspective
It’s good to see that Howden Joinery Group has rewarded shareholders with a total shareholder return of 13% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Howden Joinery Group by clicking this link.
Howden Joinery Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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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