One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, the Trimble Inc. (NASDAQ:TRMB) share price is up 59% in the last three years, clearly besting than the market return of around 38% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 3.7% in the last year.
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. 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, Trimble achieved compound earnings per share growth of 34% per year. This EPS growth is higher than the 17% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Trimble has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Trimble’s financial health with this free report on its balance sheet.
A Different Perspective
Trimble’s TSR for the year was broadly in line with the market average, at 3.7%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 0.8% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. Before spending more time on Trimble it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.