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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Sopra Steria Group SA (EPA:SOP) shareholders have enjoyed a 54% share price rise over the last half decade, well in excess of the market return of around 35% (not including dividends).
Check out our latest analysis for Sopra Steria Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years of share price growth, Sopra Steria Group achieved compound earnings per share (EPS) growth of 15% per year. The EPS growth is more impressive than the yearly share price gain of 9.0% over the same period. So one could conclude that the broader market has become more cautious towards the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Sopra Steria Group the TSR over the last 5 years was 68%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 1.3% in the last year, Sopra Steria Group shareholders lost 24% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 11%, 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 Sopra Steria Group you might want to consider these 3 valuation metrics.