Investors one-year returns in Ferretti (HKG:9638) have not grown faster than the company's underlying earnings growth

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 Ferretti S.p.A. (HKG:9638) share price is up 27% in the last 1 year, clearly besting the market decline of around 5.3% (not including dividends). That's a solid performance by our standards! We'll need to follow Ferretti for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.

Since the long term performance has been good but there's been a recent pullback of 4.5%, let's check if the fundamentals match the share price.

Check out our latest analysis for Ferretti

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 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).

Ferretti was able to grow EPS by 31% in the last twelve months. This EPS growth is reasonably close to the 27% increase in the share price. So this implies that investor expectations of the company have remained pretty steady. It makes intuitive sense that the share price and EPS would grow at similar rates.

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

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Ferretti, it has a TSR of 30% 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

Ferretti boasts a total shareholder return of 30% for the last year (that includes the dividends) . And the share price momentum remains respectable, with a gain of 11% in the last three months. This suggests the company is continuing to win over new investors. It's always interesting to track share price performance over the longer term. But to understand Ferretti better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Ferretti .

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 Hong Kong exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.