Stock Analysis

Investors Who Bought Ultra Electronics Holdings (LON:ULE) Shares Three Years Ago Are Now Up 45%

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LSE:ULE
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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, the Ultra Electronics Holdings plc (LON:ULE) share price is up 45% in the last three years, clearly besting the market decline of around 5.0% (not including dividends).

See our latest analysis for Ultra Electronics Holdings

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Ultra Electronics Holdings was able to grow its EPS at 5.4% per year over three years, sending the share price higher. In comparison, the 13% 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 is quite common to see investors become enamoured with a business, after a few years of solid progress.

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

earnings-per-share-growth
LSE:ULE Earnings Per Share Growth February 4th 2021

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. It might be well worthwhile taking a look at our free report on Ultra Electronics Holdings' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Ultra Electronics Holdings, it has a TSR of 59% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that Ultra Electronics Holdings shareholders are down 8.5% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 5.7%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are 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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