Passive investing in index funds can generate returns that roughly match the overall market. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Automotive Axles Limited (NSE:AUTOAXLES) share price is up 95% in the last five years, slightly above the market return. It’s also good to see a healthy gain of 56% in the last year.
We don’t think that Automotive Axles’ modest trailing twelve month profit has the market’s full attention at the moment. We think revenue is probably a better guide. Generally speaking, we’d consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Over the last half decade Automotive Axles’ revenue has actually been trending down at about 2.3% per year. Despite the lack of revenue growth, the stock has returned a respectable 14%, compound, over that time. It’s probably worth checking other factors such as the profitability, to try to understand the share price action. It may not be reflecting the revenue.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Take a more thorough look at Automotive Axles’ financial health with this free report on its balance sheet.
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 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 Automotive Axles, it has a TSR of 108% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Automotive Axles shareholders have received a total shareholder return of 59% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 16%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. For instance, we’ve identified 5 warning signs for Automotive Axles (1 can’t be ignored) that you should be aware of.
We will like Automotive Axles 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 IN exchanges.
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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. 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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