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Should Coles Group (ASX:COL) Be Disappointed With Their 28% Profit?

Simply Wall St

The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Coles Group Limited (ASX:COL) share price is up 28% in the last year, clearly besting the market return of around 19% (not including dividends). So that should have shareholders smiling. We'll need to follow Coles Group for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.

View our latest analysis for Coles Group

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 Coles Group grew its earnings per share (EPS) by 5.4%. This EPS growth is significantly lower than the 28% increase in the share price. This indicates that the market is now more optimistic about the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

ASX:COL Past and Future Earnings, January 6th 2020

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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 and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Coles Group the TSR over the last year was 31%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Coles Group shareholders have gained 31% over the last year , including dividends . Unfortunately the share price is down 2.0% over the last quarter. Shorter term share price moves often don't signify much about the business itself. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.