Passive investing in index funds can generate returns that roughly match the overall market. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the HeidelbergCement AG (FRA:HEI) share price is up 15% in the last five years, slightly above the market return. Zooming in, the stock is actually down 9.9% in the last year.
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 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.
Over half a decade, HeidelbergCement managed to grow its earnings per share at 12% a year. This EPS growth is higher than the 2.9% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that HeidelbergCement has improved its bottom line lately, but is it going to grow revenue? Check if analysts think HeidelbergCement will grow revenue in the future.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of HeidelbergCement, it has a TSR of 25% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that HeidelbergCement shareholders are down 7.9% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 3.0%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 4.5%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before deciding if you like the current share price, check how HeidelbergCement scores on these 3 valuation metrics.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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.