These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Dow Inc. (NYSE:DOW) share price is up 60% in the last year, clearly besting the market return of around 37% (not including dividends). That’s a solid performance by our standards! Dow hasn’t been listed for long, so it’s still not clear if it is a long term winner.
Check out our latest analysis for Dow
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 the last year Dow grew its earnings per share, moving from a loss to a profit.
When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.
Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Dow is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Dow stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Dow’s TSR for the last year was 68%, 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
It’s nice to see that Dow shareholders have gained 68% over the last year, including dividends. That’s better than the more recent three month gain of 12%, implying that share price has plateaued recently. Having said that, we doubt shareholders would be concerned. It seems the market is simply waiting on more information, because if the business delivers so will the share price (eventually). It’s always interesting to track share price performance over the longer term. But to understand Dow better, we need to consider many other factors. Take risks, for example – Dow has 2 warning signs we think you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. 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.
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