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 main game is to find enough winners to more than offset the losers So we wouldn’t blame long term NZX Limited (NZSE:NZX) shareholders for doubting their decision to hold, with the stock down 19% over a half decade. The good news is that the stock is up 1.0% in the last week.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the unfortunate half decade during which the share price slipped, NZX actually saw its earnings per share (EPS) improve by 1.2% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS. Given that EPS has increased, but the share price has fallen, it’s fair to say that market sentiment around the stock has become more negative. Having said that, if the EPS gains continue we’d expect the share price to improve, longer term.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on NZX’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 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. In the case of NZX, it has a TSR of 14% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
NZX provided a TSR of 1.7% over the last twelve months. Unfortunately this falls short of the market return. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 2.6% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Keeping this in mind, a solid next step might be to take a look at NZX’s dividend track record. This free interactive graph is a great place to start.
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 NZ 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.