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On average, over time, stock markets tend to rise higher. This makes investing attractive. But if when you choose to buy stocks, some of them will be below average performers. Over the last year the Universal Corporation (NYSE:UVV) share price is up 11%, but that's less than the broader market return. However, the longer term returns haven't been so impressive, with the stock up just 4.2% in the last 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.
View our latest analysis for Universal
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Universal was able to grow EPS by 5.5% in the last twelve months. The share price gain of 11% certainly outpaced the EPS growth. So it's fair to assume the market has a higher opinion of the business than it a year ago.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Universal's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Universal the TSR over the last 1 year was 18%, 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
Universal shareholders are up 18% 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. It is possible that returns will improve along with the business fundamentals. 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. To that end, you should learn about the 2 warning signs we've spotted with Universal (including 1 which is significant) .