Investors in Lycopodium (ASX:LYL) have made a impressive return of 142% over the past three years
By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Lycopodium Limited (ASX:LYL), which is up 99%, over three years, soundly beating the market return of 39% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 52% , including dividends .
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Lycopodium
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During three years of share price growth, Lycopodium achieved compound earnings per share growth of 23% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 26% average annual increase in the share price. This observation indicates that the market's attitude to the business hasn't changed all that much. Quite to the contrary, the share price has arguably reflected the EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Lycopodium's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Lycopodium's TSR for the last 3 years was 142%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Lycopodium has rewarded shareholders with a total shareholder return of 52% in the last twelve months. That's including the dividend. That's better than the annualised return of 18% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 1 warning sign we've spotted with Lycopodium .
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here