When we invest, we’re generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the Molson Coors Canada Inc. (TSE:TPX.B) share price is up 31% in the last 5 years, clearly besting than the market return of around 5.2% (ignoring dividends).
We don’t think that Molson Coors Canada’s modest trailing twelve month profit has the market’s full attention at the moment. We think revenue is probably a better guide. Many high growth companies focus on growing revenue before profits, but if revenue is the focus, it really needs to grow. That’s because it’s hard for shareholders to have confidence a company will grow profits significantly if it isn’t growing revenue.
In the last 5 years Molson Coors Canada saw its revenue grow at 16% per year. That’s well above most pre-profit companies. It’s good to see that the stock has 5.5%, but not entirely surprising given revenue shows strong growth. If the strong revenue growth continues, we’d expect the share price to follow, in time. Of course, you’ll have to research the business more fully to figure out if this is an attractive opportunity.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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 capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Molson Coors Canada, it has a TSR of 44% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Molson Coors Canada shareholders are down 20% for the year (even including dividends), but the market itself is up 3.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn’t be so upset, since they would have made 7.6%, 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.