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Investors can buy low cost index fund if they want to receive the average market return. But if you invest in individual stocks, some are likely to underperform. For example, the Colgate-Palmolive Company (NYSE:CL) share price return of 20% over three years lags the market return in the same period. In the last year the stock price gained, albeit only 3.1%.
Check out our latest analysis for Colgate-Palmolive
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Colgate-Palmolive was able to grow its EPS at 8.5% per year over three years, sending the share price higher. This EPS growth is higher than the 6% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Colgate-Palmolive's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Colgate-Palmolive the TSR over the last 3 years was 29%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Colgate-Palmolive shareholders gained a total return of 5.4% during the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 1 warning sign we've spotted with Colgate-Palmolive .
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.