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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Aramark (NYSE:ARMK) share price is up 57% in the last 5 years, clearly besting than the market return of around 42% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 3.6%, including dividends.
View our latest analysis for Aramark
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
Over half a decade, Aramark managed to grow its earnings per share at 27% a year. The EPS growth is more impressive than the yearly share price gain of 9.5% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Aramark's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Aramark, it has a TSR of 67% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Aramark shareholders gained a total return of 3.6% during the year. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 11% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.