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As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Symrise AG (ETR:SY1) shareholders, since the share price is down 13% in the last three years, falling well short of the market return of around 15%.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
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 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).
During the unfortunate three years of share price decline, Symrise actually saw its earnings per share (EPS) improve by 7.6% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
It's strange to see such muted share price performance despite sustained growth. Perhaps a clue lies in other metrics. So we'll have to take a look at other metrics to try to understand the price action.
The modest 1.3% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 7.7% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Symrise further; while we may be missing something on this analysis, there might also be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free report showing analyst forecasts should help you form a view on Symrise
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. As it happens, Symrise's TSR for the last 3 years was -10%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!