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. For example, the The AES Corporation (NYSE:AES) share price is up 63% in the last year, clearly besting than the market return of around -2.4% (not including dividends). That’s a solid performance by our standards! It is also impressive that the stock is up 62% over three years, adding to the sense that it is a real winner.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 AES grew its earnings per share, moving from a loss to a profit. When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.
Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
It is of course excellent to see how AES has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at AES’s financial health with this free report on its balance sheet.
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 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. As it happens, AES’s TSR for the last year was 69%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s good to see that AES has rewarded shareholders with a total shareholder return of 69% in the last twelve months. That’s including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 8.8% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Importantly, we haven’t analysed AES’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.
But note: AES 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 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.