Nick Scali (ASX:NCK) shareholders have earned a 21% CAGR over the last five years
When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Nick Scali Limited (ASX:NCK) share price is up 88% in the last 5 years, clearly besting the market return of around 12% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 17% in the last year , including dividends .
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Nick Scali
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Over half a decade, Nick Scali managed to grow its earnings per share at 20% a year. The EPS growth is more impressive than the yearly share price gain of 14% over the same period. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 9.54 also suggests market apprehension.
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 Nick Scali'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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Nick Scali's TSR for the last 5 years was 164%, 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 Nick Scali has rewarded shareholders with a total shareholder return of 17% in the last twelve months. That's including the dividend. However, that falls short of the 21% TSR per annum it has made for shareholders, each year, over five years. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.
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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.
