By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, OFX Group Limited (ASX:OFX) shareholders have seen the share price rise 83% over three years, well in excess of the market return (11%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 66% in the last year.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During three years of share price growth, OFX Group achieved compound earnings per share growth of 12% per year. In comparison, the 22% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that OFX Group has improved its bottom line lately, but is it going to grow revenue? Check if analysts think OFX Group will grow revenue in the future.
What About The Total Shareholder Return (TSR)?
We've already covered OFX Group's share price action, but we should also mention its 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. Its history of dividend payouts mean that OFX Group's TSR of 91% over the last 3 years is better than the share price return.
A Different Perspective
It's good to see that OFX Group has rewarded shareholders with a total shareholder return of 66% in the last twelve months. 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
But note: OFX Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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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