One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, The Williams Companies, Inc. (NYSE:WMB) shareholders have seen the share price rise 48% over three years, well in excess of the market return (38%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 17% in the last year, including dividends.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Williams Companies became profitable within the last five years. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. So it might be better to look at other metrics to try to understand the share price.
The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. But it's far more plausible that the revenue growth of 6.4% per year is viewed as evidence that Williams Companies is growing. It could be that investors are content with the revenue growth on the basis that the company isn't really focussed on profits just yet. And that might explain the higher price.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
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. So it makes a lot of sense to check out what analysts think Williams Companies will earn in the future (free profit forecasts)
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Williams Companies, it has a TSR of 72% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Williams Companies has rewarded shareholders with a total shareholder return of 17% in the last twelve months. Of course, that includes the dividend. There's no doubt those recent returns are much better than the TSR loss of 2.0% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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.
Williams Companies is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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 firstname.lastname@example.org. 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.