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For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in DCC plc (LON:DCC), since the last five years saw the share price fall 27%.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for DCC
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.
During the unfortunate half decade during which the share price slipped, DCC actually saw its earnings per share (EPS) improve by 3.3% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.
Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.
The steady dividend doesn't really explain why the share price is down. It's not immediately clear to us why the stock price is down but further research might provide some answers.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
DCC is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think DCC will earn in the future (free analyst consensus estimates)
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of DCC, it has a TSR of -15% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
DCC shareholders are up 7.6% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 3% endured over half a decade. So this might be a sign the business has turned its fortunes around. Keeping this in mind, a solid next step might be to take a look at DCC's dividend track record. This free interactive graph is a great place to start.