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When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Deutsche EuroShop AG (ETR:DEQ) share price is up 78% in the last 5 years, clearly besting the market return of around 51% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 18% in the last year, including dividends.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
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. 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.
Deutsche EuroShop became profitable within the last five years. On the other hand, it reported a trailing twelve months loss, suggesting it isn't reliably profitable. So it might be better to look at other metrics to try to understand the share price.
In fact, the dividend has increased over time, which is a positive. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 4.4% per year might also encourage buyers.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Deutsche EuroShop'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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Deutsche EuroShop's TSR for the last 5 years was 156%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's nice to see that Deutsche EuroShop shareholders have received a total shareholder return of 18% over the last year. Of course, that includes the dividend. However, that falls short of the 21% TSR per annum it has made for shareholders, each year, over five years. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Deutsche EuroShop , and understanding them should be part of your investment process.