Stock Analysis

Vesuvius' (LON:VSVS) 28% return outpaced the company's earnings growth over the same one-year period

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LSE:VSVS
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The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. For example, the Vesuvius plc (LON:VSVS) share price is up 21% in the last 1 year, clearly besting the market decline of around 3.2% (not including dividends). That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 9.4% in the last three years.

Since the stock has added UK£60m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Vesuvius

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Vesuvius was able to grow EPS by 16% in the last twelve months. The share price gain of 21% certainly outpaced the EPS growth. So it's fair to assume the market has a higher opinion of the business than it a year ago.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
LSE:VSVS Earnings Per Share Growth December 8th 2023

It is of course excellent to see how Vesuvius has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Vesuvius stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or 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 Vesuvius the TSR over the last 1 year was 28%, 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 Vesuvius shareholders have received a total shareholder return of 28% 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 1.9% 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. 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 2 warning signs for Vesuvius you should be aware of, and 1 of them makes us a bit uncomfortable.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether Vesuvius is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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