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By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Prestige Estates Projects Limited (NSE:PRESTIGE) share price is up 63% in the last three years, clearly besting than the market return of around 46% (not including dividends).
See our latest analysis for Prestige Estates Projects
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the three years of share price growth, Prestige Estates Projects actually saw its earnings per share (EPS) drop 14% per year. Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it’s worth considering other metrics as well.
The modest 0.5% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 7.5% per year is viewed as evidence that Prestige Estates Projects is growing. If the company is being managed for the long term good, today’s shareholders might be right to hold on.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Prestige Estates Projects is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Prestige Estates Projects will earn in the future (free analyst consensus estimates)
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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Prestige Estates Projects, it has a TSR of 66% for the last 3 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Prestige Estates Projects shareholders are down 16% for the year (even including dividends), but the market itself is up 2.2%. 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 9.1%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before forming an opinion on Prestige Estates Projects you might want to consider these 3 valuation metrics.