Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Expeditors International of Washington, Inc. (NASDAQ:EXPD) share price is up 60% in the last 5 years, clearly besting than the market return of around 45% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 3.2% in the last year, including dividends.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
During five years of share price growth, Expeditors International of Washington achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is higher than the 9.8% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Expeditors International of Washington has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Expeditors International of Washington will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Expeditors International of Washington, it has a TSR of 71% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Expeditors International of Washington shareholders gained a total return of 3.2% during the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 11% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Before spending more time on Expeditors International of Washington it might be wise to click here to see if insiders have been buying or selling shares.
But note: Expeditors International of Washington 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 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.