Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the InvoCare Limited (ASX:IVC) share price is up 34% in the last 5 years, clearly besting than the market return of around 9.4% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 19%, 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. 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 half a decade, InvoCare managed to grow its earnings per share at 4.7% a year. This EPS growth is slower than the share price growth of 6.0% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, InvoCare's TSR for the last 5 years was 55%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that InvoCare shareholders have received a total shareholder return of 19% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 9.2%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. If you would like to research InvoCare in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like InvoCare 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 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 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.