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Does Domain Holdings Australia's (ASX:DHG) Share Price Gain of 30% Match Its Business Performance?

Simply Wall St

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more than that. To wit, the Domain Holdings Australia Limited (ASX:DHG) share price is 30% higher than it was a year ago, much better than the market return of around 14% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Domain Holdings Australia hasn't been listed for long, so it's still not clear if it is a long term winner.

View our latest analysis for Domain Holdings Australia

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 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.

Over the last twelve months, Domain Holdings Australia actually shrank its EPS by 850%. We do note that there were extraordinary items impacting the result.

Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

We are skeptical of the suggestion that the 1.8% dividend yield would entice buyers to the stock. We think that the revenue growth of 16% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

ASX:DHG Income Statement, October 30th 2019

Take a more thorough look at Domain Holdings Australia's financial health with this free 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. 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. As it happens, Domain Holdings Australia's TSR for the last year was 33%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Domain Holdings Australia boasts a total shareholder return of 33% for the last year (that includes the dividends) . A substantial portion of that gain has come in the last three months, with the stock up 8.3% in that time. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. Before spending more time on Domain Holdings Australia it might be wise to click here to see if insiders have been buying or selling shares.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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