One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Coterra Energy Inc. (NYSE:CTRA), which is up 47%, over three years, soundly beating the market return of 13% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 3.8% , including dividends .
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
See our latest analysis for Coterra Energy
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During three years of share price growth, Coterra Energy achieved compound earnings per share growth of 73% per year. The average annual share price increase of 14% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. We'd venture the lowish P/E ratio of 7.03 also reflects the negative sentiment around the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Coterra Energy has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Coterra Energy, it has a TSR of 78% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Coterra Energy provided a TSR of 3.8% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 10% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Coterra Energy has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.
Of course Coterra Energy 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.
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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.