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If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. To wit, the Wilmington plc (LON:WIL) share price is 70% higher than it was a year ago, much better than the market return of around 17% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! However, the stock hasn't done so well in the longer term, with the stock only up 17% in three years.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 the last year, Wilmington actually saw its earnings per share drop 36%.
Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
We doubt the modest 1.9% dividend yield is doing much to support the share price. Wilmington's revenue actually dropped 12% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Wilmington stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
It's nice to see that Wilmington shareholders have received a total shareholder return of 72% over the last year. Of course, that includes the dividend. That's better than the annualised return of 0.8% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Wilmington better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Wilmington , and understanding them should be part of your investment process.
We will like Wilmington better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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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