One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Origin Energy Limited (ASX:ORG), which is up 96%, over three years, soundly beating the market return of 9.2% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 46% in the last year, 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.
See our latest analysis for Origin Energy
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.
Origin Energy became profitable within the last three years. That would generally be considered a positive, so we’d expect the share price to be up.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Origin Energy has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Origin Energy stock, you should check out this FREE detailed report on its balance sheet.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Origin Energy, it has a TSR of 128% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
We’re pleased to report that Origin Energy shareholders have received a total shareholder return of 46% over one year. Of course, that includes the dividend. That’s better than the annualised return of 11% 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. It’s always interesting to track share price performance over the longer term. But to understand Origin Energy better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with Origin Energy (at least 1 which shouldn’t be ignored) , and understanding them should be part of your investment process.
