When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Sirius XM Holdings Inc. (NASDAQ:SIRI) share price is up 93% in the last 5 years, clearly besting the market return of around 46% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 8.8% , including dividends .
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Sirius XM Holdings managed to grow its earnings per share at 32% a year. This EPS growth is higher than the 14% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Sirius XM Holdings has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Sirius XM Holdings will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Sirius XM Holdings the TSR over the last 5 years was 97%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Sirius XM Holdings shareholders are up 8.8% for the year (even including dividends) . But that was short of the market average. If we look back over five years, the returns are even better, coming in at 15% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before spending more time on Sirius XM Holdings it might be wise to click here to see if insiders have been buying or selling shares.
Of course Sirius XM Holdings 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 US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.