ABT) The stock has gained 28% in the past three years
By purchasing an index fund, you can roughly match the performance of the market with ease. But if you choose the right individual stocks, you could earn more than that. For example, Absolute Software Corporation (IS: ABT) shareholders saw the share price increase by 28% over three years, well beyond the market decline (15% excluding dividends). However, the most recent returns haven’t been that impressive, with the stock only returning 17% last year including dividends.
In his essay Graham-et-Doddsville superinvestors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. By comparing earnings per share (EPS) and changes in stock prices over time, we can get an idea of how investor attitudes towards a company have evolved over time.
In three years of share price growth, Absolute Software has gone from loss to profitability. This would generally be viewed as positive, so we would expect the share price to rise.
The image below shows how the EPS has tracked over time (if you click on the image you can see more details).
We know that Absolute Software has improved its results over the past three years, but what does the future hold? It might be worth taking a look at our free report on how your financial situation has changed over time.
What about dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any discounted demerger or capital increase, as well as any dividend, based on the assumption that dividends are reinvested. Arguably, the TSR gives a more complete picture of the return generated by a stock. In fact, Absolute Software’s TSR for the past 3 years was 44%, which exceeds the share price return mentioned earlier. And there’s no price in assuming that dividend payouts are a big part of the reason for the discrepancy!
A different perspective
We are pleased to report that the shareholders of Absolute Software have achieved a total shareholder return of 17% over one year. Of course, this includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter standing at 4.4% per annum), it would appear that the stock’s performance has improved in recent times. Since the stock price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is worth considering the different impacts that market conditions can have on the share price, other factors are even more important. Take risks, for example – Absolute Software has 4 warning signs (and 1 which should not be ignored) we think you should know.
If you would rather consult with another company – one with potentially superior finances – then don’t miss this free list of companies that have proven they can increase their profits.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on the California stock exchanges.
If you notice an error that warrants a correction, please contact the editor at [email protected] This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.
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