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By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Gamehost Inc. (TSE:GH) shareholders have seen the share price rise 35% over three years, well in excess of the market return (16%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 30%, including dividends.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
See our latest analysis for Gamehost
There is no denying that markets are sometimes efficient, but prices do not always reflect 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).
During three years of share price growth, Gamehost achieved compound earnings per share growth of 91% per year. This EPS growth is higher than the 10% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 10.80 also reflects the negative sentiment around the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Gamehost has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Gamehost's financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Gamehost the TSR over the last 3 years was 51%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Gamehost provided a TSR of 30% over the year (including dividends). That's fairly close to the broader market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 9%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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. Take risks, for example - Gamehost has 1 warning sign we think you should be aware of.