Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. For example, the Consolidated Water Co. Ltd. (NASDAQ:CWCO) share price return of 20% over three years lags the market return in the same period. In the last year the stock price gained, albeit only 3.9%.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During three years of share price growth, Consolidated Water achieved compound earnings per share growth of 15% per year. The average annual share price increase of 6.2% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.
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 Consolidated Water has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Consolidated Water will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Consolidated Water’s TSR for the last 3 years was 29%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s good to see that Consolidated Water has rewarded shareholders with a total shareholder return of 6.7% in the last twelve months. That’s including the dividend. That gain is better than the annual TSR over five years, which is 3.9%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
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.