It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For instance the Infrastrutture Wireless Italiane S.p.A. (BIT:INW) share price is 108% higher than it was three years ago. That sort of return is as solid as granite. It's even up 6.6% in the last week.
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 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 three years of share price growth, Infrastrutture Wireless Italiane achieved compound earnings per share growth of 13% per year. This EPS growth is lower than the 28% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Infrastrutture Wireless Italiane the TSR over the last 3 years was 126%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Pleasingly, Infrastrutture Wireless Italiane's total shareholder return last year was 48%. That's including the dividend. So this year's TSR was actually better than the three-year TSR (annualized) of 31%. Given the track record of solid returns over varying time frames, it might be worth putting Infrastrutture Wireless Italiane on your watchlist. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Be aware that Infrastrutture Wireless Italiane is showing 1 warning sign in our investment analysis , you should know about...
We will like Infrastrutture Wireless Italiane 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 IT exchanges.
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.
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