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. For example, Alexanderwerk Aktiengesellschaft (FRA:ALX) shareholders have seen the share price rise 59% over three years, well in excess of the market return (2.6%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.2% in the last year , including dividends .
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
See our latest analysis for Alexanderwerk
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 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, Alexanderwerk achieved compound earnings per share growth of 23% per year. This EPS growth is higher than the 17% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. We'd venture the lowish P/E ratio of 10.63 also reflects the negative sentiment around the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Alexanderwerk's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Alexanderwerk's TSR for the last 3 years was 84%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Alexanderwerk shareholders have received a total shareholder return of 6.2% over the last year. That's including the dividend. However, the TSR over five years, coming in at 9% per year, is even more impressive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 3 warning signs for Alexanderwerk you should be aware of, and 1 of them is significant.