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Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Acme United Corporation (NYSEMKT:ACU) share price is 29% higher than it was a year ago, much better than the market return of around 16% (not including dividends) in the same period. So that should have shareholders smiling. On the other hand, longer term shareholders have had a tougher run, with the stock falling 3.1% in three years.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year Acme United grew its earnings per share (EPS) by 54%. It's fair to say that the share price gain of 29% did not keep pace with the EPS growth. So it seems like the market has cooled on Acme United, despite the growth. Interesting.
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 Acme United's earnings, revenue and cash flow.
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. In the case of Acme United, it has a TSR of 33% for the last year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We're pleased to report that Acme United shareholders have received a total shareholder return of 33% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 5.3% 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. Before forming an opinion on Acme United you might want to consider these 3 valuation metrics.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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.