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 Nordson Corporation (NASDAQ:NDSN) shareholders have enjoyed a 91% share price rise over the last half decade, well in excess of the market return of around 54% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 17% in the last year , including dividends .
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
Check out our latest analysis for Nordson
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Over half a decade, Nordson managed to grow its earnings per share at 6.7% a year. This EPS growth is lower than the 14% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that’s hardly shocking given the track record of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on Nordson’s earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Nordson’s TSR for the last 5 years was 100%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Nordson’s TSR for the year was broadly in line with the market average, at 17%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 15% per year. Even if the share price growth slows down from here, there’s a good chance that this is business worth watching in the long term. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course Nordson 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 American exchanges.
Valuation is complex, but we’re helping make it simple.
Find out whether Nordson is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
