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The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. For example, the The Berkeley Group Holdings plc (LON:BKG) share price is up 22% in the last 1 year, clearly besting the market return of around 8.3% (not including dividends). So that should have shareholders smiling. However, the longer term returns haven't been so impressive, with the stock up just 4.3% in the last three years.
While this past week has detracted from the company's one-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
View our latest analysis for Berkeley Group Holdings
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over the last twelve months, Berkeley Group Holdings actually shrank its EPS by 12%.
So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We are skeptical of the suggestion that the 1.4% dividend yield would entice buyers to the stock. Unfortunately Berkeley Group Holdings' fell 3.4% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Berkeley Group Holdings is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
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. In the case of Berkeley Group Holdings, it has a TSR of 28% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!