By purchasing an index fund, investors can get closer to the average market return. But if you buy good companies at attractive prices, your portfolio returns could exceed the average market return. For example, the Patrizia AG The share price (ETR: PAT) has risen 30% over the past three years, significantly outperforming the market return by around 24% (excluding dividends).

Given that the stock added € 143million to its market cap in the past week alone, let’s see if the underlying performance has generated any long-term returns.

See our latest review for Patrizia

While the markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just the underlying performance of the company. An imperfect but simple way to consider how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.

Over the past three years, Patrizia has failed to increase its earnings per share, which fell 26% (annualized).

This means that the market is unlikely to judge the company based on earnings growth. Therefore, we believe it is worth considering other measures as well.

The modest 1.3% dividend yield is unlikely to support the stock price. The 1.4% drop in income is as disappointing as some politicians. What is clear is that historical earnings and income do not correspond very well to the development of the share price. So you may have to dig deeper to understand the situation.

The graph below illustrates the evolution of earnings and income over time (reveal the exact values ​​by clicking on the image).

XTRA: PAT Earnings and Revenue Growth September 16, 2021

You can see how his track record has strengthened (or weakened) over time in this free interactive graphic.

What about dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. While the share price return reflects only the change in the share price, the TSR includes the value of dividends (assuming they have been reinvested) and the benefit of any capital increase or spin- off updated. Arguably, the TSR gives a more complete picture of the return generated by a stock. Note that for Patrizia the TSR over the last 3 years was 34%, which is better than the share price return mentioned above. This is largely the result of his dividend payments!

A different perspective

Patrizia’s investors had a difficult year, with a total loss of 6.2% (including dividends), against a market gain of around 26%. Even good stock prices sometimes drop, but we want to see improvements in the fundamentals of a company, before we get too interested. Longer-term investors would not be so upset, as they would have gained 6%, each year, over five years. If fundamentals continue to point to sustainable long-term growth, the current sell-off could be an opportunity to consider. While it is 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 have identified 1 warning sign for Patrizia that you need to be aware of.

If you would rather consult with another company – one with potentially superior finances – then don’t miss this free list of companies that have proven they can increase their profits.

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on the DE stock exchanges.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020

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