By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, the Advanced Emissions Solutions, Inc. (NASDAQ:ADES) share price is up 86% in the last three years, clearly besting than the market return of around 38% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 39%, including dividends.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Advanced Emissions Solutions was able to grow its EPS at 302% per year over three years, sending the share price higher. This EPS growth is higher than the 23% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.83.
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 Advanced Emissions Solutions has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Advanced Emissions Solutions's financial health with this free 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. 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, Advanced Emissions Solutions's TSR for the last 3 years was 135%, 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 Advanced Emissions Solutions shareholders have received a total shareholder return of 39% over one year. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 2.6% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. Importantly, we haven't analysed Advanced Emissions Solutions's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
Of course Advanced Emissions Solutions may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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 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. Thank you for reading.