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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. For example, Omnicom Group Inc. (NYSE:OMC) shareholders have seen the share price rise 27% over three years, well in excess of the market return (13%, not including 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 .
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
View our latest analysis for Omnicom Group
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Omnicom Group was able to grow its EPS at 17% per year over three years, sending the share price higher. The average annual share price increase of 8% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.36.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Omnicom Group 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?
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Omnicom Group's TSR for the last 3 years was 42%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Omnicom Group shareholders are up 4.6% for the year (even including dividends). But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 5% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Omnicom Group is showing 1 warning sign in our investment analysis , you should know about...