By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Valvoline Inc. (NYSE:VVV), which is up 50%, over three years, soundly beating the market return of 25% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 0.8% in the last year , including dividends .
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 three years of share price growth, Valvoline achieved compound earnings per share growth of 27% per year. The average annual share price increase of 14% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Valvoline has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Valvoline the TSR over the last 3 years was 58%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It’s nice to see that Valvoline shareholders have received a total shareholder return of 0.8% over the last year. Of course, that includes the dividend. However, the TSR over five years, coming in at 7% per year, is even more impressive. 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. It’s always interesting to track share price performance over the longer term. But to understand Valvoline better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for Valvoline (1 doesn’t sit too well with us!) that you should be aware of before investing here.
Of course Valvoline may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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. 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.
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