Yahoo Finance The three-year returns for Jenoptik's (ETR:JEN) shareholders have been , yet its earnings growth was even better
By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Jenoptik AG (ETR:JEN), which is up 19%, over three years, soundly beating the market decline of 14% (not including dividends).
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
See our latest analysis for Jenoptik
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years of share price growth, Jenoptik achieved compound earnings per share growth of 32% per year. This EPS growth is higher than the 6% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Jenoptik has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Jenoptik stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Jenoptik's TSR for the last 3 years was 23%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Jenoptik shareholders are down 3.7% for the year (even including dividends), but the market itself is up 8.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.4% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For instance, we've identified 1 warning sign for Jenoptik that you should be aware of.
But note: Jenoptik may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on German 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.
