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Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, the EQB Inc. (TSE:EQB) share price is up 77% in the last 5 years, clearly besting the market return of around 43% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 15% in the last year, including dividends.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for EQB
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, EQB managed to grow its earnings per share at 13% a year. This EPS growth is remarkably close to the 12% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Indeed, it would appear the share price is reacting to the EPS.
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 EQB'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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, EQB's TSR for the last 5 years was 94%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
EQB provided a TSR of 15% over the last twelve months. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 14% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand EQB better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with EQB .