One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Wentworth Resources plc (LON:WEN) shareholders have seen the share price rise 14% over three years, well in excess of the market decline (0.4%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 4.2% , including dividends .
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Wentworth Resources
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 three years of share price growth, Wentworth Resources moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Wentworth Resources has grown profits over the years, but the future is more important for shareholders. This free interactive report on Wentworth Resources' balance sheet strength is a great place to start, if you want to investigate the stock further.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Wentworth Resources' TSR for the last 3 years was 34%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Wentworth Resources shareholders have gained 4.2% (in total) over the last year. And yes, that does include the dividend. That falls short of the 10% it has made, for shareholders, each year, over three years. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 2 warning signs for Wentworth Resources that you should be aware of before investing here.