If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the The Southern Company (NYSE:SO) share price is up 24% in the last five years, that's less than the market return. Some buyers are laughing, though, with an increase of 22% in the last year.
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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Southern achieved compound earnings per share (EPS) growth of 8.6% per year. The EPS growth is more impressive than the yearly share price gain of 4.4% over the same period. So one could conclude that the broader market has become more cautious towards the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Southern's earnings, revenue and cash flow.
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 Southern the TSR over the last 5 years was 58%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Southern shareholders have received a total shareholder return of 28% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 9.5%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Southern by clicking this link.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.