One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Vector Limited (NZSE:VCT) shareholders have seen the share price rise 44% over three years, well in excess of the market return (23%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 29% in the last year , including dividends .
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Over the last three years, Vector failed to grow earnings per share, which fell 17% (annualized).
So we doubt that the market is looking to EPS for its main judge of the company's value. Given this situation, it makes sense to look at other metrics too.
We severely doubt anyone is particularly impressed with the modest 1.6% three-year revenue growth rate. While we don't have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Vector has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Vector
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Vector, it has a TSR of 65% for the last 3 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 29% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 13% per year), it would seem that the stock's performance has improved in recent times. 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 Vector better, we need to consider many other factors. For example, we've discovered 2 warning signs for Vector that you should be aware of before investing here.
But note: Vector 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 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.
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