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Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term Siemens Healthineers AG (ETR:SHL) shareholders have enjoyed a 48% share price rise over the last half decade, well in excess of the market return of around 3.6% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 11%, including dividends.
While the stock has fallen 3.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
See our latest analysis for Siemens Healthineers
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 five years of share price growth, Siemens Healthineers achieved compound earnings per share (EPS) growth of 3.1% per year. This EPS growth is lower than the 8% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Siemens Healthineers has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Siemens Healthineers will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Siemens Healthineers, it has a TSR of 62% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Siemens Healthineers provided a TSR of 11% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 10% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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 2 warning signs we've spotted with Siemens Healthineers (including 1 which can't be ignored) .