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Did Alstom's (EPA:ALO) Share Price Deserve to Gain 56%?

Simply Wall St

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, the Alstom SA (EPA:ALO) share price is up 56% in the last three years, clearly besting the market return of around 29% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 14% , including dividends .

View our latest analysis for Alstom

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 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.

Alstom became profitable within the last three years. So we would expect a higher share price over the period.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

ENXTPA:ALO Past and Future Earnings, October 25th 2019

It is of course excellent to see how Alstom has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Alstom stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Alstom's TSR for the last 3 years was 82%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Alstom provided a TSR of 14% over the year (including dividends) . That's fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 9.6% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. Keeping this in mind, a solid next step might be to take a look at Alstom's dividend track record. This free interactive graph is a great place to start.

Of course Alstom may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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 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. Thank you for reading.