Yahoo Finance Elementis (LON:ELM) shareholders have earned a 27% return over the last year
Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. For example, the Elementis plc (LON:ELM) share price is up 25% in the last 1 year, clearly besting the market return of around 5.8% (not including dividends). So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 0.9% in three years.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Elementis
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During the last year Elementis grew its earnings per share, moving from a loss to a profit.
When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
We are skeptical of the suggestion that the 1.1% dividend yield would entice buyers to the stock. Elementis' revenue actually dropped 3.1% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Elementis has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Elementis in this interactive graph of future profit estimates.
A Different Perspective
It's good to see that Elementis has rewarded shareholders with a total shareholder return of 27% in the last twelve months. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 0.6% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Elementis better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Elementis .
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 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.
