Yahoo Finance Investing in National Grid (LON:NG.) five years ago would have delivered you a 49% gain
When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the National Grid share price has climbed 15% in five years, easily topping the market decline of 8.8% (ignoring dividends).
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for National Grid
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Over half a decade, National Grid managed to grow its earnings per share at 12% a year. This EPS growth is higher than the 3% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that National Grid has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 National Grid the TSR over the last 5 years was 49%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Although it hurts that National Grid returned a loss of 4.0% in the last twelve months, the broader market was actually worse, returning a loss of 5.7%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 8% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand National Grid better, we need to consider many other factors. For instance, we've identified 2 warning signs for National Grid (1 shouldn't be ignored) that you should be aware of.
Of course National Grid may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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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