By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Standard Motor Products, Inc. (NYSE:SMP), which is up 49%, over three years, soundly beating the market return of 40% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 0.9% in the last year, including dividends.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Standard Motor Products was able to grow its EPS at 6.3% per year over three years, sending the share price higher. This EPS growth is lower than the 14% average annual increase in the share price. So it’s fair to assume the market has a higher opinion of the business than it did three years ago. It’s not unusual to see the market ‘re-rate’ a stock, after a few years of growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Standard Motor Products’s earnings, revenue and cash flow.
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 incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Standard Motor Products the TSR over the last 3 years was 57%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Standard Motor Products provided a TSR of 0.9% over the last twelve months. But that return falls short of the market. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 8.7% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before spending more time on Standard Motor Products it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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.