If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Spark Infrastructure Group (ASX:SKI) share price is 34% higher than it was a year ago, much better than the market return of around 21% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! However, the stock hasn't done so well in the longer term, with the stock only up 26% in three years.
So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Spark Infrastructure Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Over the last twelve months, Spark Infrastructure Group actually shrank its EPS by 1.1%.
We don't think that the decline in earnings per share is a good measure of the business over the last twelve months. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We haven't seen Spark Infrastructure Group increase dividend payments yet, so the yield probably hasn't helped drive the share higher. Revenue actually dropped 6.8% over last year. It's fair to say we're a little surprised to see the share price up, and that makes us cautious.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
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. So it makes a lot of sense to check out what analysts think Spark Infrastructure Group will earn in the future (free profit 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 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. In the case of Spark Infrastructure Group, it has a TSR of 42% for the last 1 year. 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!