If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the Superior Group of Companies, Inc. (NASDAQ:SGC) share price is up 68% in the last year, clearly besting the market return of around 39% (not including dividends). So that should have shareholders smiling. Having said that, the longer term returns aren't so impressive, with stock gaining just 9.4% in three years.
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.
Superior Group of Companies was able to grow EPS by 265% in the last twelve months. It's fair to say that the share price gain of 68% did not keep pace with the EPS growth. So it seems like the market has cooled on Superior Group of Companies, despite the growth. Interesting. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.34.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Superior Group of Companies has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Superior Group of Companies 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 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 Superior Group of Companies the TSR over the last year was 72%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Superior Group of Companies shareholders have received a total shareholder return of 72% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 10%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Take risks, for example - Superior Group of Companies has 2 warning signs (and 1 which is significant) we think you should know about.
Of course Superior Group of Companies 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 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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