Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. For example, the Snap-on Incorporated (NYSE:SNA) share price is up 57% in the last year, clearly besting the market return of around 36% (not including dividends). So that should have shareholders smiling. However, the longer term returns haven't been so impressive, with the stock up just 27% in the last three years.
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).
Snap-on was able to grow EPS by 6.6% in the last twelve months. This EPS growth is significantly lower than the 57% increase in the share price. So it's fair to assume the market has a higher opinion of the business than it a year ago.
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 Snap-on's earnings, revenue and cash flow.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Snap-on, it has a TSR of 61% for the last year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Snap-on has rewarded shareholders with a total shareholder return of 61% in the last twelve months. That's including the dividend. That's better than the annualised return of 9% 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 Snap-on in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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 US exchanges.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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