In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Amsterdam Commodities N.V. (AMS:ACOMO) shareholders have had that experience, with the share price dropping 11% in three years, versus a market return of about 40%.
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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Amsterdam Commodities saw its EPS decline at a compound rate of 1.9% per year, over the last three years. This reduction in EPS is slower than the 3.7% annual reduction in the share price. So it seems the market was too confident about the business, in the past.
You can see below how EPS has changed over time.
This free interactive report on Amsterdam Commodities’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Amsterdam Commodities the TSR over the last 3 years was 3.4%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Amsterdam Commodities shareholders have received returns of 12% over twelve months (even including dividends) , which isn’t far from the general market return. Most would be happy with a gain, and it helps that the year’s return is actually better than the average return over five years, which was 6.7%. Even if the share price growth slows down from here, there’s a good chance that this is business worth watching in the long term. Importantly, we haven’t analysed Amsterdam Commodities’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.
If you are like me, then you will 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 NL 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 firstname.lastname@example.org. 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.