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If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the LondonMetric Property Plc (LON:LMP) share price is 28% higher than it was a year ago, much better than the market return of around 11% (not including dividends) in the same period. That's a solid performance by our standards! Zooming out, the stock is actually down 19% in the last three years.
Since the stock has added UK£186m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Check out our latest analysis for LondonMetric Property
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
LondonMetric Property went from making a loss to reporting a profit, in the last year.
The result looks like a strong improvement to us, so we're not surprised the market likes the growth. Inflection points like this can be a great time to take a closer look at a company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that LondonMetric Property has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for LondonMetric Property the TSR over the last 1 year was 35%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that LondonMetric Property has rewarded shareholders with a total shareholder return of 35% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 3%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand LondonMetric Property better, we need to consider many other factors. Even so, be aware that LondonMetric Property is showing 4 warning signs in our investment analysis , and 2 of those are a bit unpleasant...