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By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at LU-VE S.p.A. (BIT:LUVE), which is up 20%, over three years, soundly beating the market return of 6.8% (not including dividends).
See our latest analysis for LU-VE
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
LU-VE was able to grow its EPS at 14% per year over three years, sending the share price higher. This EPS growth is higher than the 6.2% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that LU-VE has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, LU-VE's TSR for the last 3 years was 27%, 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
We're pleased to report that LU-VE rewarded shareholders with a total shareholder return of 19% over the last year. That includes the value of the dividend. That's better than the annualized TSR of 8.3% over the last three years. The improving returns to shareholders suggests the stock is becoming more popular with time. Before forming an opinion on LU-VE you might want to consider these 3 valuation metrics.
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.