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By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, the CESC Limited (NSE:CESC) share price is up 25% in the last three years, clearly besting the market return of around 19% (not including dividends).
View our latest analysis for CESC
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.
CESC was able to grow its EPS at 26% per year over three years, sending the share price higher. This EPS growth is higher than the 7.7% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.40.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that CESC has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, CESC's TSR for the last 3 years was 31%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in CESC had a tough year, with a total loss of 4.6% (including dividends) , against a market gain of about 1.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2.1% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is CESC cheap compared to other companies? These 3 valuation measures might help you decide.
But note: CESC may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).