The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the SBM Offshore N.V. (AMS:SBMO) share price is up 46% in the last 1 year, clearly besting the market return of around 22% (not including dividends). So that should have shareholders smiling. However, the stock hasn’t done so well in the longer term, with the stock only up 21% in three years.
So let’s assess the underlying fundamentals over the last 1 year and see if they’ve moved in lock-step with shareholder returns.
See our latest analysis for SBM Offshore
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During the last year SBM Offshore grew its earnings per share (EPS) by 28%. The share price gain of 46% certainly outpaced the EPS growth. So it’s fair to assume the market has a higher opinion of the business than it a year ago.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that SBM Offshore has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, SBM Offshore’s TSR for the last 1 year was 54%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that SBM Offshore shareholders have received a total shareholder return of 54% over the last year. And that does include the dividend. That’s better than the annualised return of 8% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we’ve identified 3 warning signs for SBM Offshore (2 can’t be ignored) that you should be aware of.
We will like SBM Offshore better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Dutch 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.
