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By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. Just take a look at HIL Limited (NSE:HIL), which is up 99%, over three years, soundly beating the market return of 27% (not including dividends).
View our latest analysis for HIL
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 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 three years of share price growth, HIL achieved compound earnings per share growth of 41% per year. This EPS growth is higher than the 26% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 10.01 also reflects the negative sentiment around the stock.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that HIL has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on HIL's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of HIL, it has a TSR of 109% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
HIL shareholders are down 44% for the year (even including dividends) , but the market itself is up 6.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 14% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is HIL cheap compared to other companies? These 3 valuation measures might help you decide.