If you want to compound wealth in the stock market, you can do so by buying an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Williams-Sonoma, Inc. (NYSE:WSM) share price is up 19% in the last year, clearly besting than the market return of around 9.6% (not including dividends). That’s a solid performance by our standards! However, the stock hasn’t done so well in the longer term, with the stock only up 5.2% in three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last year Williams-Sonoma grew its earnings per share (EPS) by 35%. It’s fair to say that the share price gain of 19% did not keep pace with the EPS growth. So it seems like the market has cooled on Williams-Sonoma, despite the growth. Interesting.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Williams-Sonoma has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.
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. We note that for Williams-Sonoma the TSR over the last year was 23%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s good to see that Williams-Sonoma has rewarded shareholders with a total shareholder return of 23% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 1.9%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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 US 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.