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One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Peet Limited (ASX:PPC) share price is up 19% in the last three years, clearly besting the market return of around 8.2% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 12% 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.
See our latest analysis for Peet
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
Peet was able to grow its EPS at 9.8% per year over three years, sending the share price higher. The average annual share price increase of 6% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Peet's key metrics by checking this interactive graph of Peet's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Peet, it has a TSR of 39% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Peet provided a TSR of 12% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 5% over half a decade It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 3 warning signs for Peet (1 can't be ignored) that you should be aware of.