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Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. For example, the MyState Limited (ASX:MYS) share price return of 11% over three years lags the market return in the same period. Unfortunately, the share price has fallen 4.6% over twelve months.
Check out our latest analysis for MyState
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.
MyState was able to grow its EPS at 0.5% per year over three years, sending the share price higher. In comparison, the 3.6% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
This free interactive report on MyState's earnings, revenue and cash flow 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. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of MyState, it has a TSR of 33% 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
MyState shareholders are up 1.5% for the year (even including dividends) . But that return falls short of the market. On the bright side, the longer term returns (running at about 6.1% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Before spending more time on MyState it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.