Investors can buy low cost index fund if they want to receive the average market return. But across the board there are plenty of stocks that underperform the market. For example, the Stride Stapled Group (NZSE:SPG) share price return of 33% over three years lags the market return in the same period. In the last year the stock has gained 20%.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
During the three years of share price growth, Stride Stapled Group actually saw its earnings per share (EPS) drop 2.7% per year.
Given the share price resilience, we don’t think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. Therefore, it makes sense to look into other metrics.
The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. But it’s far more plausible that the revenue growth of 9.0% per year is viewed as evidence that Stride Stapled Group is growing. It could be that investors are content with the revenue growth on the basis that the company isn’t really focussed on profits just yet. And that might explain the higher price.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Stride Stapled Group’s balance sheet strength 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). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Stride Stapled Group, it has a TSR of 58% for the last 3 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
While the market return was 26% in the last year, Stride Stapled Group returned 26% to shareholders. Most would be happy with a gain, and it helps that the year’s return is actually better than the average return of 17% over the last three years, implying that the company is doing better recently. We’re certainly happy to see the uptick and we hope the underlying business goes on to justify the improved valuation. It’s always interesting to track share price performance over the longer term. But to understand Stride Stapled Group better, we need to consider many other factors. For instance, we’ve identified 3 warning signs for Stride Stapled Group (1 can’t be ignored) that you should be aware of.
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 NZ exchanges.
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.
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