By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, Smart Parking Limited (ASX:SPZ) shareholders have seen the share price rise 12% over three years, well in excess of the market return (5.6%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 2.2%.
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.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Smart Parking became profitable within the last three years. That would generally be considered a positive, so we'd expect the share price to be up.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Smart Parking has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Smart Parking's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's nice to see that Smart Parking shareholders have received a total shareholder return of 2.2% over the last year. Notably the five-year annualised TSR loss of 1.2% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand Smart Parking better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Smart Parking you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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