Vector's (NZSE:VCT) investors will be pleased with their notable 46% return over the last five years

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8 hours ago

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, the Vector Limited (NZSE:VCT) share price is up 13% in the last 5 years, clearly besting the market decline of around 6.9% (ignoring dividends).
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over half a decade, Vector managed to grow its earnings per share at 17% a year. This EPS growth is higher than the 3% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Vector has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Vector the TSR over the last 5 years was 46%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
It's good to see that Vector has rewarded shareholders with a total shareholder return of 19% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 8%. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Vector (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on New Zealander exchanges.
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