By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, Westgold Resources Limited (ASX:WGX) shareholders have seen the share price rise 42% over three years, well in excess of the market return (2.7%, not including dividends).
Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.
Check out our latest analysis for Westgold Resources
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Over the last three years, Westgold Resources failed to grow earnings per share, which fell 12% (annualized).
So we doubt that the market is looking to EPS for its main judge of the company’s value. Given this situation, it makes sense to look at other metrics too.
The modest 0.9% dividend yield is unlikely to be propping up the share price. It may well be that Westgold Resources revenue growth rate of 8.6% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder’s faith in better days ahead will be rewarded.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So we recommend checking out this free report showing consensus forecasts
It’s good to see that Westgold Resources has rewarded shareholders with a total shareholder return of 37% in the last twelve months. And that does include the dividend. That’s better than the annualised return of 5% over half a decade, implying that the company is doing better recently. 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. To that end, you should learn about the 2 warning signs we’ve spotted with Westgold Resources (including 1 which is a bit unpleasant) .
