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Vector (NZSE:VCT) Has Compensated Shareholders With A Respectable 68% Return On Their Investment

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Simply Wall St
·3 min read
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If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Vector Limited (NZSE:VCT) share price is up 29% in the last five years, that's less than the market return. Zooming in, the stock is up a respectable 19% in the last year.

See our latest analysis for Vector

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Over half a decade, Vector managed to grow its earnings per share at 2.2% a year. This EPS growth is lower than the 5% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

We know that Vector has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Vector, it has a TSR of 68% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Vector has rewarded shareholders with a total shareholder return of 24% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 11%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Vector , and understanding them should be part of your investment process.

We will like Vector better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.