By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the Nine Entertainment Co. Holdings Limited (ASX:NEC) share price is up 86% in the last three years, clearly besting the market return of around 21% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 16% , 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.
During three years of share price growth, Nine Entertainment Holdings achieved compound earnings per share growth of 62% per year. The average annual share price increase of 23% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 10.59 also reflects the negative sentiment around the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Nine Entertainment Holdings has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Nine Entertainment Holdings stock, you should check out this FREE detailed report on its balance sheet.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Nine Entertainment Holdings's TSR for the last 3 years was 123%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Nine Entertainment Holdings shareholders are up 16% for the year (even including dividends) . Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 2.9% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. Importantly, we haven't analysed Nine Entertainment Holdings's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
We will like Nine Entertainment Holdings 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 AU 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 email@example.com. 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.