Pets at Home Group's (LON:PETS) investors will be pleased with their respectable 78% return over the last five years
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term Pets at Home Group Plc (LON:PETS) shareholders have enjoyed a 51% share price rise over the last half decade, well in excess of the market return of around 1.0% (not including dividends).
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
View our latest analysis for Pets at Home Group
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, Pets at Home Group managed to grow its earnings per share at 23% a year. The EPS growth is more impressive than the yearly share price gain of 9% over the same period. So it seems the market isn't so enthusiastic about the stock these days.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Pets at Home Group's TSR for the last 5 years was 78%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 15% in the last year, Pets at Home Group shareholders lost 15% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Pets at Home Group better, we need to consider many other factors. Take risks, for example - Pets at Home Group has 1 warning sign we think you should be aware of.
But note: Pets at Home Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com