By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, LSL Property Services plc (LON:LSL) shareholders have seen the share price rise 17% over three years, well in excess of the market return (8.2%, not including dividends).
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the three years of share price growth, LSL Property Services actually saw its earnings per share (EPS) drop 33% per year.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Given this situation, it makes sense to look at other metrics too.
The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. And revenue growth isn't impressive. It may be that a closer look at revenue trends can explain the share price.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on LSL Property Services's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for LSL Property Services the TSR over the last 3 years was 35%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
LSL Property Services provided a TSR of 22% 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 2.6% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. If you would like to research LSL Property Services in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: LSL Property Services 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 GB exchanges.
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.
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.