If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Landis+Gyr Group AG (VTX:LAND) share price is up 16% in the last five years, slightly above the market return. Zooming in, the stock is actually down 2.3% in the last year.
Although Landis+Gyr Group has shed CHF123m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
Check out our latest analysis for Landis+Gyr Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Landis+Gyr Group's earnings per share are down 8.3% per year, despite strong share price performance over five years.
Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.
It is not great to see that revenue has dropped by 1.2% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Landis+Gyr Group's TSR for the last 5 years was 38%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Landis+Gyr Group has rewarded shareholders with a total shareholder return of 0.6% in the last twelve months. And that does include the dividend. However, the TSR over five years, coming in at 7% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Landis+Gyr Group (of which 1 shouldn't be ignored!) you should know about.