These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more than that. For example, the PEC Ltd. (SGX:IX2) share price is up 11% in the last 1 year, clearly besting the market return of around 0.3% (not including dividends). So that should have shareholders smiling. In contrast, the longer term returns are negative, since the share price is 3.4% lower than it was three years ago.
So let’s assess the underlying fundamentals over the last 1 year and see if they’ve moved in lock-step with shareholder returns.
View our latest analysis for PEC
There is no denying that markets are sometimes efficient, but prices do not always reflect 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, PEC actually saw its earnings per share drop 37%.
This means it’s unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
We haven’t seen PEC increase dividend payments yet, so the yield probably hasn’t helped drive the share higher. It seems far more likely that the 13% boost to the revenue over the last year, is making the difference. After all, it’s not necessarily a bad thing if a business sacrifices profits today in pursuit of profit tomorrow (metaphorically speaking).
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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?
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. In the case of PEC, it has a TSR of 17% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s good to see that PEC has rewarded shareholders with a total shareholder return of 17% in the last twelve months. That’s including the dividend. That gain is better than the annual TSR over five years, which is 1.7%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 PEC .
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SG exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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