One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Applegreen plc (LON:APGN) share price is up 29% in the last three years, clearly besting than the market return of around 4.4% (not including dividends).
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years of share price growth, Applegreen actually saw its earnings per share (EPS) drop 7.1% per year. This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
The modest 0.3% dividend yield is unlikely to be propping up the share price. It may well be that Applegreen revenue growth rate of 21% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today's shareholders might be right to hold on.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free report showing analyst forecasts should help you form a view on Applegreen
A Different Perspective
Applegreen shareholders are down 12% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 0.3%, likely weighing on the stock. Investors are up over three years, booking 9.1% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. Before deciding if you like the current share price, check how Applegreen scores on these 3 valuation metrics.
We will like Applegreen 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 GB 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.