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Thanks in no small measure to Vanguard founder Jack Bogle, it's easy buy a low cost index fund, which should provide the average market return. But if you pick the right individual stocks, you could make more than that. Notably, the PACCAR Inc (NASDAQ:PCAR) share price has gained 33% in three years, which is better than the average market return. Zooming in, the stock is up a respectable 8.1% in the last year.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
View our latest analysis for PACCAR
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During the three years of share price growth, PACCAR actually saw its earnings per share (EPS) drop 2.3% per year.
Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don't think EPS is the most important metric for PACCAR at the moment. Therefore, it makes sense to look into other metrics.
Languishing at just 1.6%, we doubt the dividend is doing much to prop up the share price. You can only imagine how long term shareholders feel about the declining revenue trend (slipping at 1.6% per year). The only thing that's clear is there is low correlation between PACCAR's share price and its historic fundamental data. Further research may be required!
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
PACCAR is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of PACCAR, it has a TSR of 47% 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.