Investors Who Bought Procter & Gamble (NYSE:PG) Shares Three Years Ago Are Now Up 57%
One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, The Procter & Gamble Company (NYSE:PG) shareholders have seen the share price rise 57% over three years, well in excess of the market return (39%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 6.1% , including dividends .
See our latest analysis for Procter & Gamble
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.
Procter & Gamble was able to grow its EPS at 12% per year over three years, sending the share price higher. In comparison, the 16% per year gain in the share price outpaces the EPS growth. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It's not unusual to see the market 're-rate' a stock, after a few years of growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Procter & Gamble has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Procter & Gamble the TSR over the last 3 years was 71%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Procter & Gamble provided a TSR of 6.1% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 12% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Procter & Gamble , and understanding them should be part of your investment process.
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 US exchanges.
This article by Simply Wall St is general in nature. 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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