Stock Analysis

The one-year returns for Shell's (LON:SHEL) shareholders have been notable, yet its earnings growth was even better

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LSE:SHEL
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The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Shell plc (LON:SHEL) share price is up 52% in the last 1 year, clearly besting the market decline of around 6.7% (not including dividends). That's a solid performance by our standards! However, the longer term returns haven't been so impressive, with the stock up just 13% in the last three years.

Since it's been a strong week for Shell shareholders, let's have a look at trend of the longer term fundamentals.

Our analysis indicates that SHEL is potentially undervalued!

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Shell boasted truly magnificent EPS growth in the last year. We don't think the exact number is a good guide to the sustainable growth rate, but we do think this sort of increase is impressive. So we'd expect to see the share price higher. To us, inflection points like this are the best time to take a close look at a stock.

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:SHEL Earnings Per Share Growth December 1st 2022

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

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Shell, it has a TSR of 58% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Shell shareholders have received a total shareholder return of 58% 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 6% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Shell better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Shell you should be aware of, and 1 of them is concerning.

Shell 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.

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

Find out whether Shell 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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