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These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Kennametal Inc. (NYSE:KMT) share price is 90% higher than it was a year ago, much better than the market return of around 54% (not including dividends) in the same period. That's a solid performance by our standards! However, the stock hasn't done so well in the longer term, with the stock only up 5.5% in three years.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During the last year Kennametal saw its earnings per share (EPS) drop below zero. While some may see this as temporary, we're a skeptical bunch, and so we're a little surprised to see the share price go up. We might get a clue to explain the share price move by looking to other metrics.
We are skeptical of the suggestion that the 1.9% dividend yield would entice buyers to the stock. Kennametal's revenue actually dropped 23% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Kennametal the TSR over the last year was 95%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Kennametal has rewarded shareholders with a total shareholder return of 95% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Kennametal better, we need to consider many other factors. For example, we've discovered 2 warning signs for Kennametal that you should be aware of before investing here.
Of course Kennametal 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.
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. 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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