Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Driven Brands Holdings Inc. (NASDAQ:DRVN) share price is 12% higher than it was a year ago, much better than the market decline of around 13% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! We'll need to follow Driven Brands Holdings for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
Since the stock has added US$238m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 last year Driven Brands Holdings grew its earnings per share, moving from a loss to a profit.
While it's good to see positive EPS of US$0.25 this year, the loss wasn't too bad last year. But judging by the share price, the market is happy with the maiden profit. Some investors scan for companies that have just become profitable, since that's an important business development milestone.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Driven Brands Holdings has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Driven Brands Holdings shareholders should be happy with the total gain of 12% over the last twelve months. And the share price momentum remains respectable, with a gain of 8.0% in the last three months. This suggests the company is continuing to win over new investors. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Driven Brands Holdings (of which 1 makes us a bit uncomfortable!) you should know about.
But note: Driven Brands Holdings 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 American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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