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The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. For example, the adidas AG (ETR:ADS) share price is up 30% in the last 1 year, clearly besting the market return of around 17% (not including dividends). That's a solid performance by our standards! The longer term returns have not been as good, with the stock price only 20% higher than it was three years ago.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for adidas
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last year adidas grew its earnings per share, moving from a loss to a profit.
When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
We are skeptical of the suggestion that the 0.3% dividend yield would entice buyers to the stock. We think that the revenue growth of 3.2% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
adidas 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.
A Different Perspective
It's nice to see that adidas shareholders have received a total shareholder return of 31% over the last year. And that does include the dividend. That's better than the annualised return of 0.3% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: adidas may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).