In This Article:
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term EnBW Energie Baden-Württemberg AG (ETR:EBK) shareholders have enjoyed a 52% share price rise over the last half decade, well in excess of the market decline of around 3.4% (not including dividends).
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
View our latest analysis for EnBW Energie Baden-Württemberg
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, EnBW Energie Baden-Württemberg achieved compound earnings per share (EPS) growth of 5.4% per year. This EPS growth is lower than the 9% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 51.24.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into EnBW Energie Baden-Württemberg's key metrics by checking this interactive graph of EnBW Energie Baden-Württemberg'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. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, EnBW Energie Baden-Württemberg's TSR for the last 5 years was 64%, 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
While the broader market gained around 17% in the last year, EnBW Energie Baden-Württemberg shareholders lost 16% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 10% per year over half a decade. 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. Case in point: We've spotted 4 warning signs for EnBW Energie Baden-Württemberg you should be aware of, and 2 of them are a bit unpleasant.