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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 The Hour Glass Limited (SGX:AGS) share price is up 24% in the last 5 years, clearly besting than the market return of around -1.3% (ignoring dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 4.6% in the last year, including dividends.
Check out our latest analysis for Hour Glass
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During five years of share price growth, Hour Glass achieved compound earnings per share (EPS) growth of 4.7% per year. So the EPS growth rate is rather close to the annualized share price gain of 4.4% per year. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. 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).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Hour Glass’s earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Hour Glass the TSR over the last 5 years was 43%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We’re pleased to report that Hour Glass shareholders have received a total shareholder return of 4.6% over one year. Of course, that includes the dividend. Having said that, the five-year TSR of 7.5% a year, is even better. Potential buyers might understandably feel they’ve missed the opportunity, but it’s always possible business is still firing on all cylinders. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.