By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, the Openjobmetis S.p.A. (BIT:OJM) share price is up 47% in the last three years, clearly besting the market return of around 7.6% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 4.1% , including dividends .
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Openjobmetis achieved compound earnings per share growth of 12% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 14% average annual increase in the share price. This observation indicates that the market's attitude to the business hasn't changed all that much. Au contraire, the share price change has arguably mimicked the EPS growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Openjobmetis's key metrics by checking this interactive graph of Openjobmetis's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Openjobmetis, it has a TSR of 52% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Openjobmetis produced a TSR of 4.1% over the last year. Unfortunately this falls short of the market return of around 24%. But the (superior) three-year TSR of 15% per year is some consolation. We prefer focus on longer term returns, as they are usually a more meaningful indication of the underlying business. Is Openjobmetis cheap compared to other companies? These 3 valuation measures might help you decide.
Of course Openjobmetis 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 IT exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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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