Investors can buy low cost index fund if they want to receive the average market return. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the Aurizon Holdings Limited (ASX:AZJ) share price is up 16% in the last three years, that falls short of the market return. Looking at more recent returns, the stock is up 6.7% in a year.
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 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).
Aurizon Holdings was able to grow its EPS at 42% per year over three years, sending the share price higher. This EPS growth is higher than the 5.0% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.
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 Aurizon 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.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Aurizon Holdings’s TSR for the last 3 years was 35%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We’re pleased to report that Aurizon Holdings shareholders have received a total shareholder return of 13% over one year. Of course, that includes the dividend. That’s better than the annualised return of 3.2% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.