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Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Topaz Energy Corp. (TSE:TPZ) share price is 24% higher than it was a year ago, much better than the market return of around 19% (not including dividends) in the same period. That's a solid performance by our standards! Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
In light of the stock dropping 4.2% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive one-year return.
See our latest analysis for Topaz Energy
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the last year Topaz Energy grew its earnings per share (EPS) by 345%. This EPS growth is significantly higher than the 24% increase in the share price. So it seems like the market has cooled on Topaz Energy, despite the growth. Interesting. Having said that, the market is still optimistic, given the P/E ratio of 125.93.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Topaz Energy's earnings, revenue and cash flow.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Topaz Energy the TSR over the last 1 year was 30%, 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
It's nice to see that Topaz Energy shareholders have gained 30% over the last year, including dividends. The more recent returns haven't been as impressive as the longer term returns, coming in at just 0.5%. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). 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 learn about the 3 warning signs we've spotted with Topaz Energy (including 2 which are significant) .