Yahoo Finance The 18% return delivered to Orica's (ASX:ORI) shareholders actually lagged YoY earnings growth
By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Orica Limited (ASX:ORI) shareholders have seen the share price rise 11% over three years, well in excess of the market return (6.4%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 8.4% in the last year , including dividends .
The past week has proven to be lucrative for Orica investors, so let's see if fundamentals drove the company's three-year performance.
See our latest analysis for Orica
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Orica was able to grow its EPS at 54% per year over three years, sending the share price higher. The average annual share price increase of 3% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.
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 Orica has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position 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. 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, Orica's TSR for the last 3 years was 18%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Orica shareholders have received a total shareholder return of 8.4% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 1.1%. 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. It's always interesting to track share price performance over the longer term. But to understand Orica better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Orica you should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian 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.
