In This Article:
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
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. Just take a look at Inspired Energy PLC (LON:INSE), which is up 23%, over three years, soundly beating the market return of 16% (not including dividends).
Check out our latest analysis for Inspired Energy
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During the three years of share price growth, Inspired Energy actually saw its earnings per share (EPS) drop 5.5% per year. This means it's unlikely the market is judging the company based on earnings growth. Therefore, we think it's worth considering other metrics as well.
We note that the dividend is higher than it was preciously, so that may have assisted the share price. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 25% per year might also encourage buyers.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We know that Inspired Energy 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 Inspired Energy
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Inspired Energy the TSR over the last 3 years was 34%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Inspired Energy shareholders are down 9.7% for the year (even including dividends), but the market itself is up 3.8%. 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. Longer term investors wouldn't be so upset, since they would have made 5.4%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Keeping this in mind, a solid next step might be to take a look at Inspired Energy's dividend track record. This free interactive graph is a great place to start.