IDOX (LON:IDOX) shareholders have earned a 13% CAGR over the last five years
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term IDOX plc (LON:IDOX) shareholders have enjoyed a 77% share price rise over the last half decade, well in excess of the market return of around 1.4% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 1.5% in the last year , including dividends .
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for IDOX
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 the last half decade, IDOX became profitable. That's generally thought to be a genuine positive, so we would expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the IDOX share price is up 2.3% in the last three years. In the same period, EPS is up 125% per year. This EPS growth is higher than the 0.8% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. Having said that, the market is still optimistic, given the P/E ratio of 51.11.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that IDOX has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, IDOX's TSR for the last 5 years was 81%, 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
IDOX shareholders are up 1.5% for the year (even including dividends). But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 13% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Is IDOX cheap compared to other companies? These 3 valuation measures might help you decide.
But note: IDOX may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
