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By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Webjet Limited (ASX:WEB), which is up 59%, over three years, soundly beating the market return of 2.9% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 11% in the last year.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
View our latest analysis for Webjet
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 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 three years of share price growth, Webjet moved from a loss to profitability. So we would expect a higher share price over the period.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Webjet has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Webjet's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Webjet provided a TSR of 11% over the last twelve months. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 0.2% per year, over five years. So this might be a sign the business has turned its fortunes around. If you would like to research Webjet in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Webjet may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian 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.