In This Article:
By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at LyondellBasell Industries N.V. (NYSE:LYB), which is up 22%, over three years, soundly beating the market return of 11% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 11% in the last year , 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.
Check out our latest analysis for LyondellBasell Industries
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
LyondellBasell Industries was able to grow its EPS at 26% per year over three years, sending the share price higher. This EPS growth is higher than the 7% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of LyondellBasell Industries, it has a TSR of 48% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
LyondellBasell Industries' TSR for the year was broadly in line with the market average, at 11%. 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 6%. 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. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for LyondellBasell Industries you should know about.