Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. For example, the freenet AG (ETR:FNTN) share price is up 39% in the last year, clearly besting the market return of around 25% (not including dividends). So that should have shareholders smiling. In contrast, the longer term returns are negative, since the share price is 19% lower than it was three years ago.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last year freenet grew its earnings per share (EPS) by 21%. This EPS growth is significantly lower than the 39% increase in the share price. This indicates that the market is now more optimistic about the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that freenet has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for freenet the TSR over the last year was 50%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s good to see that freenet has rewarded shareholders with a total shareholder return of 50% in the last twelve months. That’s including the dividend. That gain is better than the annual TSR over five years, which is 1.4%. 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. 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. Even so, be aware that freenet is showing 2 warning signs in our investment analysis , you should know about…
Of course freenet 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 DE exchanges.
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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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