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Did Genesis Energy's (NZSE:GNE) Share Price Deserve to Gain 85%?

Simply Wall St

Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the Genesis Energy share price has climbed 85% in five years, easily topping the market return of 54% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 48%, including dividends.

View our latest analysis for Genesis Energy

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Genesis Energy achieved compound earnings per share (EPS) growth of 3.5% per year. This EPS growth is lower than the 13% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 58.13.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

NZSE:GNE Past and Future Earnings, August 31st 2019

We know that Genesis Energy has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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 spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Genesis Energy's TSR for the last 5 years was 179%, 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

It's nice to see that Genesis Energy shareholders have received a total shareholder return of 48% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 23%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Before spending more time on Genesis Energy it might be wise to click here to see if insiders have been buying or selling shares.

We will like Genesis Energy better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ 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.