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Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. For example, the Exelon Corporation (NYSE:EXC) share price return of 40% over three years lags the market return in the same period. On the other hand, the more recent gain of 21% over a year is certainly pleasing.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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.
Exelon was able to grow its EPS at 7.6% per year over three years, sending the share price higher. This EPS growth is lower than the 12% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It’s not unusual to see the market ‘re-rate’ a stock, after a few years of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on Exelon’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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Exelon the TSR over the last 3 years was 56%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It’s good to see that Exelon has rewarded shareholders with a total shareholder return of 25% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 11% per year), it would seem that the stock’s performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Is Exelon cheap compared to other companies? These 3 valuation measures might help you decide.
We will like Exelon better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.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.