When we invest, our goal is generally to find stocks that outperform the market average. While active stock picking involves risks, it can also yield substantial returns. Coles Group's (ASX: COL) share price, for instance, has risen by 30% over the past five years, significantly outpacing the market's 22% return (excluding dividends).
This article delves into whether Coles Group's long-term performance aligns with its business progress.
Warren Buffett’s essay, "The Superinvestors of Graham-and-Doddsville," highlights how share prices don’t always rationally reflect a company's value. By comparing earnings per share (EPS) and share price changes over time, we can gauge how investor sentiment towards a company has evolved.
Over the past five years, Coles Group achieved a compound EPS growth of 3.4% per year. This EPS growth, while solid, is slower than the share price growth of 5% per year over the same period. This disparity suggests that market participants now hold the company in higher regard, likely due to its consistent earnings growth.
Insider Activity
It's encouraging that insiders have been purchasing shares in the last twelve months. However, future earnings are critical for current shareholders looking to profit. To delve deeper into Coles Group's financial health, one might consider examining this free interactive report on the company’s earnings, revenue, and cash flow.
Dividends and Total Shareholder Return
Investors should also consider the total shareholder return (TSR) in addition to the share price return. The TSR includes the value of dividends (assuming they were reinvested) and any benefits from discounted capital raising or spin-offs. For Coles Group, the TSR over the last five years was 58%, surpassing the share price return alone. This indicates that the company’s dividends have significantly enhanced the total return for shareholders.
A Broader Perspective
Despite Coles Group shareholders experiencing a 7.0% decline in the past year (including dividends), the market has risen by 14% during the same period. However, even top-performing stocks can underperform the market over a single year. Long-term shareholders of Coles Group have enjoyed an annual gain of 10% over the past five years, underscoring the company’s steady growth.
The current market dip could present a buying opportunity if the company's fundamental data continues to suggest long-term sustainable growth. It’s crucial to consider various market conditions and their potential impacts on share prices. However, other factors might be even more significant in evaluating Coles Group’s potential.
Coles Group has demonstrated robust growth over the past five years, with its share price significantly outperforming the market. The company’s consistent earnings growth, coupled with insider buying and a strong TSR, paints a promising picture for long-term investors. Although recent performance has lagged, the overall trajectory remains positive. Investors should continue to monitor the company’s fundamentals and market conditions to make informed decisions.