One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, Parker-Hannifin Corporation (NYSE:PH) shareholders have seen the share price rise 57% over three years, well in excess of the market return (40%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 13%, including dividends.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During three years of share price growth, Parker-Hannifin achieved compound earnings per share growth of 20% per year. The average annual share price increase of 16% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Parker-Hannifin has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Parker-Hannifin 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Parker-Hannifin the TSR over the last 3 years was 66%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Parker-Hannifin has rewarded shareholders with a total shareholder return of 13% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 9.9% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you would like to research Parker-Hannifin in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like Parker-Hannifin 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 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.