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Stock pickers are generally looking for stocks that will outperform the broader market. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term ÜSTRA Hannoversche Verkehrsbetriebe Aktiengesellschaft (FRA:HVB) shareholders have enjoyed a 54% share price rise over the last half decade, well in excess of the market return of around 33% (not including dividends).
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.
ÜSTRA Hannoversche Verkehrsbetriebe isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
For the last half decade, ÜSTRA Hannoversche Verkehrsbetriebe can boast revenue growth at a rate of 5.5% per year. Put simply, that growth rate fails to impress. While it's hard to say just how much value the company added over five years, the annualised share price gain of 9% seems about right. The business could be one worth watching but we generally prefer faster revenue growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for ÜSTRA Hannoversche Verkehrsbetriebe the TSR over the last 5 years was 57%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market gained around 14% in the last year, ÜSTRA Hannoversche Verkehrsbetriebe shareholders lost 20% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with ÜSTRA Hannoversche Verkehrsbetriebe .