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By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, KBR, Inc. (NYSE:KBR) shareholders have seen the share price rise 59% over three years, well in excess of the market return (35%, not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 27%, including dividends.
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, KBR actually saw its earnings per share (EPS) drop 2.3% per year. Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don’t think EPS is the most important metric for KBR at the moment. Therefore, it makes sense to look into other metrics.
The modest 1.4% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 3.5% per year is viewed as evidence that KBR is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder’s faith in better days ahead will be rewarded.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, KBR’s TSR for the last 3 years was 68%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that KBR shareholders have received a total shareholder return of 27% over the last year. And that does include the dividend. That certainly beats the loss of about 0.4% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Before deciding if you like the current share price, check how KBR scores on these 3 valuation metrics.
Of course KBR 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 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 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.