By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, the Worley Limited (ASX:WOR) share price is up 100% in the last three years, clearly besting the market return of around 22% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 27% , 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 Worley
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 the three years of share price growth, Worley actually saw its earnings per share (EPS) drop 26% per year. This was, in part, due to extraordinary items impacting earning in the last twelve months.
This means it's unlikely the market is judging the company based on earnings growth. Therefore, we think it's worth considering other metrics as well.
The revenue drop of 8.3% is as underwhelming as some politicians. The only thing that's clear is there is low correlation between Worley's share price and its historic fundamental data. Further research may be required!
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
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. 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. We note that for Worley the TSR over the last 3 years was 127%, 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!