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By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Lindsay Australia Limited (ASX:LAU), which is up 26%, over three years, soundly beating the market return of 0.7% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 14% in the last year , including dividends .
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 the three years of share price growth, Lindsay Australia actually saw its earnings per share (EPS) drop 7.0% per year.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Given this situation, it makes sense to look at other metrics too.
We doubt the dividend payments explain the share price rise, since we don't see any improvement in that regard. It's much more likely that the fact that Lindsay Australia has been growing revenue at 7.8% a year is seen as a genuine positive. In that case, the revenue growth might be more important to shareholders, for now, thus justifying a higer share price.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Lindsay Australia has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Lindsay Australia will earn in the future (free profit forecasts).
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Lindsay Australia the TSR over the last 3 years was 48%, 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
It's nice to see that Lindsay Australia shareholders have received a total shareholder return of 14% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 7%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Lindsay Australia better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Lindsay Australia .
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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