Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Greggs plc (LON:GRG) shareholders have enjoyed a 57% share price rise over the last half decade, well in excess of the market return of around 1.6% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 8.0% in the last year , including dividends .
So let’s assess the underlying fundamentals over the last 5 years and see if they’ve moved in lock-step with shareholder returns.
Check out our latest analysis for Greggs
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During the five years of share price growth, Greggs moved from a loss to profitability. That’s generally thought to be a genuine positive, so we would expect to see an increasing share price.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Greggs has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Greggs’ financial health with this free report on its balance sheet.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Greggs the TSR over the last 5 years was 74%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Greggs shareholders have received a total shareholder return of 8.0% over the last year. And that does include the dividend. However, that falls short of the 12% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. Before spending more time on Greggs 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.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
