Investing in Krones (ETR:KRN) five years ago would have delivered you a 114% gain
Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term Krones AG (ETR:KRN) shareholders have enjoyed a 99% share price rise over the last half decade, well in excess of the market return of around 11% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 12% in the last year, including 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.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
During the five years of share price growth, Krones moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Krones share price is up 24% in the last three years. Meanwhile, EPS is up 17% per year. This EPS growth is higher than the 8% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious 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 Krones has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Krones will grow revenue in the future.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Krones' TSR for the last 5 years was 114%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Krones provided a TSR of 12% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 16% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for Krones that you should be aware of before investing here.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.