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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Nordwest Handel AG (FRA:NWX) has fallen short of that second goal, with a share price rise of 17% over five years, which is below the market return. The last year has been disappointing, with the stock price down 1.8% in that time.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
We've discovered 3 warning signs about Nordwest Handel. View them for free.
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. 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 five years of share price growth, Nordwest Handel achieved compound earnings per share (EPS) growth of 8.3% per year. The EPS growth is more impressive than the yearly share price gain of 3% over the same period. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.10.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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. We note that for Nordwest Handel the TSR over the last 5 years was 35%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Nordwest Handel shareholders are up 3.0% for the year (even including dividends). But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 6% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Nordwest Handel better, we need to consider many other factors. For example, we've discovered 3 warning signs for Nordwest Handel (1 is concerning!) that you should be aware of before investing here.