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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term PulteGroup, Inc. (NYSE:PHM) shareholders have enjoyed a 62% share price rise over the last half decade, well in excess of the market return of around 37% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 2.5% in the last year , including dividends .
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for PulteGroup
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 five years of share price growth, PulteGroup achieved compound earnings per share (EPS) growth of 39% per year. This EPS growth is higher than the 10% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 4.94.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that PulteGroup has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at PulteGroup’s financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, PulteGroup’s TSR for the last 5 years was 73%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We’re pleased to report that PulteGroup shareholders have received a total shareholder return of 2.5% over one year. And that does include the dividend. However, the TSR over five years, coming in at 12% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. 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. Even so, be aware that PulteGroup is showing 2 warning signs in our investment analysis , you should know about…
We will like PulteGroup better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
What are the risks and opportunities for PulteGroup?
PulteGroup, Inc., through its subsidiaries, primarily engages in the homebuilding business in the United States.
View Full Analysis
Rewards
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Price-To-Earnings ratio (4.9x) is below the US market (14.9x)
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Earnings grew by 39.5% over the past year
Risks
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Earnings are forecast to decline by an average of 23.5% per year for the next 3 years
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High level of non-cash earnings
View all Risks and Rewards
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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