By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Propel Funeral Partners Limited (ASX:PFP) shareholders have seen the share price rise 59% over three years, well in excess of the market return (38%, not including dividends).
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for Propel Funeral Partners
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 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, Propel Funeral Partners moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Propel Funeral Partners has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Propel Funeral Partners will grow revenue in the future.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Propel Funeral Partners' TSR for the last 3 years was 76%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Propel Funeral Partners shareholders are down 3.0% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 0.6%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 11%, 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 1 warning sign we've spotted with Propel Funeral Partners .