These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Amcor plc (ASX:AMC) share price is 20% higher than it was five years ago, which is more than the market average. Also positive is the 6.2% share price rise over the last year.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 five years of share price growth, Amcor actually saw its EPS drop 11% per year.
Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. The falling EPS doesn't correlate with the climbing share price, so it's worth taking a look at other metrics.
In fact, the dividend has increased over time, which is a positive. It could be that the company is reaching maturity and dividend investors are buying for the yield.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Amcor is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Amcor in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Amcor the TSR over the last 5 years was 46%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Amcor provided a TSR of 11% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 7.9% over half a decade It is possible that returns will improve along with the business fundamentals. Keeping this in mind, a solid next step might be to take a look at Amcor's dividend track record. This free interactive graph is a great place to start.
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 AU 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 email@example.com. 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.