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The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Newell Brands Inc. (NASDAQ:NWL) share price is up 28% in the last year, clearly besting the market return of around 23% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! On the other hand, longer term shareholders have had a tougher run, with the stock falling 12% in three years.
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 the last year Newell Brands saw its earnings per share (EPS) drop below zero. While some may see this as temporary, we're a skeptical bunch, and so we're a little surprised to see the share price go up. We might get a clue to explain the share price move by looking to other metrics.
Newell Brands' revenue actually dropped 8.4% 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).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Newell Brands in this interactive graph of future profit estimates.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Newell Brands' TSR for the last year was 35%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Newell Brands shareholders have received a total shareholder return of 35% over one year. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 2% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with Newell Brands .
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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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