The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. For example, the National Australia Bank Limited (ASX:NAB) share price is up 16% in the last 1 year, clearly besting the market decline of around 7.9% (not including dividends). That's a solid performance by our standards! The longer term returns have not been as good, with the stock price only 12% higher than it was three years ago.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During the last year National Australia Bank grew its earnings per share (EPS) by 31%. It's fair to say that the share price gain of 16% did not keep pace with the EPS growth. So it seems like the market has cooled on National Australia Bank, despite the growth. Interesting.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that National Australia Bank has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst 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 National Australia Bank the TSR over the last 1 year was 21%, 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
We're pleased to report that National Australia Bank shareholders have received a total shareholder return of 21% over one year. And that does include the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand National Australia Bank better, we need to consider many other factors. For example, we've discovered 2 warning signs for National Australia Bank (1 doesn't sit too well with us!) that you should be aware of before investing here.
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 AU exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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