By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, Ingevity Corporation (NYSE:NGVT) shareholders have seen the share price rise 70% over three years, well in excess of the market return (36%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 2.5%.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During three years of share price growth, Ingevity achieved compound earnings per share growth of 76% per year. The average annual share price increase of 19% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Ingevity has grown profits over the years, but the future is more important for shareholders. This free interactive report on Ingevity's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Ingevity shareholders are up 2.5% for the year. While you don't go broke making a profit, this return was actually lower than the average market return of about 21%. At least the longer term returns (running at about 19% a year, are better. Even the best companies don't see strong share price performance every year. If you would like to research Ingevity in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Ingevity may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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