Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. For example, the Gilead Sciences, Inc. (NASDAQ:GILD) share price is up 23% in the last 1 year, clearly besting the market return of around 2.4% (not including dividends). That's a solid performance by our standards! Having said that, the longer term returns aren't so impressive, with stock gaining just 1.5% in three years.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year Gilead Sciences grew its earnings per share (EPS) by 24%. We note that the earnings per share growth isn't far from the share price growth (of 23%). That suggests that the market sentiment around the company hasn't changed much over that time. It makes intuitive sense that the share price and EPS would grow at similar rates.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Gilead Sciences has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Gilead Sciences the TSR over the last 1 year was 28%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that Gilead Sciences has rewarded shareholders with a total shareholder return of 28% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 6%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Gilead Sciences you should know about.
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 American 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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