If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. To wit, the BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) share price is 64% higher than it was a year ago, much better than the market return of around 36% (not including dividends) in the same period. So that should have shareholders smiling. BJ's Wholesale Club Holdings hasn't been listed for long, so it's still not clear if it is a long term winner.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
BJ's Wholesale Club Holdings was able to grow EPS by 124% in the last twelve months. It's fair to say that the share price gain of 64% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about BJ's Wholesale Club Holdings as it was before. This could be an opportunity.
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 BJ's Wholesale Club Holdings has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
BJ's Wholesale Club Holdings boasts a total shareholder return of 64% for the last year. That's better than the more recent three month gain of 1.1%, implying that share price has plateaued recently. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for BJ's Wholesale Club Holdings that you should be aware of.
But note: BJ's Wholesale Club Holdings 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 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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