When we invest, we’re generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Universal Health Services, Inc. (NYSE:UHS) share price is up 58% in the last 5 years, clearly besting than the market return of around 46% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 16%, including dividends.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Universal Health Services achieved compound earnings per share (EPS) growth of 9.9% per year. That makes the EPS growth particularly close to the yearly share price growth of 9.6%. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. In fact, the share price seems to largely reflect the EPS growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Universal Health Services’s key metrics by checking this interactive graph of Universal Health Services’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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Universal Health Services, it has a TSR of 61% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Universal Health Services shareholders have received a total shareholder return of 16% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 9.9%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before forming an opinion on Universal Health Services you might want to consider these 3 valuation metrics.
But note: Universal Health Services may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).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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