- Oops!Something went wrong.Please try again later.
Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Deluxe Corporation (NYSE:DLX) share price is 56% higher than it was a year ago, much better than the market return of around 36% (not including dividends) in the same period. So that should have shareholders smiling. Zooming out, the stock is actually down 25% in the last three years.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Deluxe went from making a loss to reporting a profit, in the last year.
The result looks like a strong improvement to us, so we're not surprised the market likes the growth. Generally speaking the profitability inflection point is a great time to research a company closely, lest you miss an opportunity to profit.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Deluxe has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Deluxe will grow revenue in the future.
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 spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Deluxe, it has a TSR of 61% for the last year. 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
We're pleased to report that Deluxe shareholders have received a total shareholder return of 61% over one year. And that does include the dividend. Notably the five-year annualised TSR loss of 5% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Deluxe better, we need to consider many other factors. For instance, we've identified 2 warning signs for Deluxe that you should be aware of.
Of course Deluxe may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.