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One way to deal with stock volatility is to ensure you have a properly diverse portfolio. But if you're going to beat the market overall, you need to have individual stocks that outperform. NortonLifeLock Inc. (NASDAQ:NLOK) has done well over the last year, with the stock price up 25% beating the market return of 23% (not including dividends). In contrast, the longer term returns are negative, since the share price is 20% lower than it was three years ago.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
NortonLifeLock boasted truly magnificent EPS growth in the last year. We don't think the exact number is a good guide to the sustainable growth rate, but we do think this sort of increase is impressive. So we'd expect to see the share price higher. To us, inflection points like this are the best time to take a close look at a stock.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that NortonLifeLock has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, NortonLifeLock's TSR for the last year was 28%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
NortonLifeLock shareholders have received returns of 28% over twelve months (even including dividends), which isn't far from the general market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 21% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand NortonLifeLock better, we need to consider many other factors. Even so, be aware that NortonLifeLock is showing 4 warning signs in our investment analysis , and 3 of those are significant...
We will like NortonLifeLock 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 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.
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