Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Piscines Desjoyaux SA (EPA:ALPDX) share price is up 78% in the last 5 years, clearly besting the market return of around 32% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 29% in the last year , including dividends .
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.
During five years of share price growth, Piscines Desjoyaux achieved compound earnings per share (EPS) growth of 23% per year. The EPS growth is more impressive than the yearly share price gain of 12% over the same period. So one could conclude that the broader market has become more cautious towards 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's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Piscines Desjoyaux's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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, Piscines Desjoyaux's TSR for the last 5 years was 131%, 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
We're pleased to report that Piscines Desjoyaux shareholders have received a total shareholder return of 29% over one year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 18% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Before forming an opinion on Piscines Desjoyaux you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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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