Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Flutter Entertainment plc (LON:FLTR) shareholders have enjoyed a 32% share price rise over the last half decade, well in excess of the market decline of around 8.8% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 0.8% in the last year.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Flutter Entertainment
Flutter Entertainment wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last 5 years Flutter Entertainment saw its revenue grow at 33% per year. Even measured against other revenue-focussed companies, that's a good result. While the compound gain of 6% per year is good, it's not unreasonable given the strong revenue growth. If the strong revenue growth continues, we'd expect the share price to follow, in time. Of course, you'll have to research the business more fully to figure out if this is an attractive opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Flutter Entertainment
A Dividend Lost
It's important to keep in mind that we've been talking about the share price returns, which don't include dividends, while the total shareholder return does. In some ways, TSR is a better measure of how well an investment has performed. Flutter Entertainment's TSR over the last 5 years is 41%; better than its share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
It's good to see that Flutter Entertainment has rewarded shareholders with a total shareholder return of 0.8% in the last twelve months. 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. 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. For example, we've discovered 1 warning sign for Flutter Entertainment that you should be aware of before investing here.