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Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the DEFAMA Deutsche Fachmarkt AG (ETR:DEF) share price is up 60% in the last 5 years, clearly besting the market return of around 6.2% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 19%, including dividends.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for DEFAMA Deutsche Fachmarkt
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Over half a decade, DEFAMA Deutsche Fachmarkt managed to grow its earnings per share at 13% a year. This EPS growth is higher than the 10% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that DEFAMA Deutsche Fachmarkt has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
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. We note that for DEFAMA Deutsche Fachmarkt the TSR over the last 5 years was 80%, 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
It's nice to see that DEFAMA Deutsche Fachmarkt shareholders have received a total shareholder return of 19% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Even so, be aware that DEFAMA Deutsche Fachmarkt is showing 3 warning signs in our investment analysis , and 1 of those is significant...