One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) share price is up 76% in the last three years, clearly besting than the market return of around 41% (not including dividends).
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Gulf Oil Lubricants India was able to grow its EPS at 23% per year over three years, sending the share price higher. We don’t think it is entirely coincidental that the EPS growth is reasonably close to the 21% average annual increase in the share price. That suggests that the market sentiment around the company hasn’t changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Gulf Oil Lubricants India has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
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 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. As it happens, Gulf Oil Lubricants India’s TSR for the last 3 years was 83%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
The last twelve months weren’t great for Gulf Oil Lubricants India shares, which performed worse than the market, costing holders 10%, including dividends. Meanwhile, the broader market slid about 5.0%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 22% per year over three years. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.