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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 Babcock International Group PLC (LON:BAB), which is up 43%, over three years, soundly beating the market decline of 2.0% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 15%, including dividends.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Babcock International Group
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Babcock International Group became profitable within the last three years. So we would expect a higher share price over the period.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Babcock International Group has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Babcock International Group's financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Babcock International Group the TSR over the last 3 years was 45%, 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
We're pleased to report that Babcock International Group shareholders have received a total shareholder return of 15% over one year. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 4% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. If you would like to research Babcock International Group in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.