If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. For example, the Chevron Corporation (NYSE:CVX) share price is up 58% in the last 1 year, clearly besting the market decline of around 15% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Looking back further, the stock price is 53% higher than it was three years ago.
So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.
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.
During the last year Chevron grew its earnings per share (EPS) by 242%. It's fair to say that the share price gain of 58% did not keep pace with the EPS growth. So it seems like the market has cooled on Chevron, despite the growth. Interesting. The caution is also evident in the lowish P/E ratio of 10.25.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Chevron has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Chevron the TSR over the last 1 year was 64%, 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 Chevron has rewarded shareholders with a total shareholder return of 64% in the last twelve months. That's including the dividend. That's better than the annualised return of 13% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Chevron better, we need to consider many other factors. Even so, be aware that Chevron is showing 2 warning signs in our investment analysis , and 1 of those is significant...
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.
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