These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But you can significantly boost your returns by picking above-average stocks. For example, the Smiths Group plc (LON:SMIN) share price is up 59% in the last year, clearly besting the market return of around 35% (not including dividends). That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 2.3% in the last three years.
View our latest analysis for Smiths Group
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 the last year, Smiths Group actually saw its earnings per share drop 54%.
This means it's unlikely the market is judging the company based on earnings growth. 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.
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).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Smiths Group will earn in the future (free profit forecasts).
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Smiths Group's TSR for the last year was 63%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Smiths Group shareholders have received a total shareholder return of 63% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 10% 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. 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. Case in point: We've spotted 4 warning signs for Smiths Group you should be aware of.
Smiths Group is not the only stock that insiders are buying. 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 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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About LSE:SMIN
Smiths Group
Operates as an industrial technology company in Americas, Europe, the Asia Pacific, and internationally.
Flawless balance sheet with proven track record and pays a dividend.
