By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, Sonova Holding AG (VTX:SOON) shareholders have seen the share price rise 61% over three years, well in excess of the market return (17%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 11%, including dividends.
See our latest analysis for Sonova Holding
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Sonova Holding was able to grow its EPS at 11% per year over three years, sending the share price higher. This EPS growth is lower than the 17% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Sonova Holding has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sonova Holding's TSR for the last 3 years was 67%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Sonova Holding provided a TSR of 11% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 9.8% per year over five year. This suggests the company might be improving over time. Is Sonova Holding cheap compared to other companies? These 3 valuation measures might help you decide.