One way to compare the performance of companies is to review their total shareholder return (TSR). The TSR is a measure of the returns to a shareholder based upon the dividend received plus the share price movement over a set period (generally measured in years).
Experienced investors will no doubt be aware of the folly of measuring a company’s performance based upon its share price movement in the short term. A much more accurate picture can be drawn from reviewing metrics such as return on equity and earnings per share.
Over the long term if you believe that the market is reasonably efficient then the change in share price should provide a reasonably accurate reflection of a company’s performance.
Three firms which have produced outstanding TSR over the last decade are REA Group Limited (ASX: REA), CSL Limited (ASX: CSL) and InvoCare Limited (ASX: IVC). Respectively each company has produced a 10-year TSR of 49.5% per annum (pa), 25% pa and 19% pa.
These returns to shareholders are remarkable but of course what matters now is the future returns.
On this subject things continue to look good for these three outperformers. REA continues to grow its offering overseas where it is emulating its domestic real estate classifieds success. Meanwhile, CSL has a breadth of opportunities in its highly skilled area of biopharmaceuticals which provide numerous avenues for future growth. Finally, InvoCare operates in an industry with significant scale advantages and impressive pricing power. As a funeral operator, InvoCare is also benefiting from the tailwind of an aging population.
I have all three of these companies on my watchlist as I believe they all have the ability to grow earnings at rates faster than your average company. The catch is their share prices all look to0 rich to me at present, so I’m patiently waiting.
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*Returns as of February 15th 2021
Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
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