By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the Lindab International AB (STO:LIAB) share price is up 40% in the last three years, clearly besting than the market return of around 9.6% (not including dividends).
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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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 three years of share price growth, Lindab International achieved compound earnings per share growth of 16% per year. This EPS growth is higher than the 12% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Lindab International has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
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. As it happens, Lindab International’s TSR for the last 3 years was 48%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We’re pleased to report that Lindab International shareholders have received a total shareholder return of 36% over one year. And that does include the dividend. That’s better than the annualised return of 5.8% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. If you would like to research Lindab International in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Lindab International may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE 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.