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Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the adidas AG (ETR:ADS) share price is up 98% in the last 5 years, clearly besting the market return of around 33% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 19% , including dividends .

While this past week has detracted from the company’s five-year return, let’s look at the recent trends of the underlying business and see if the gains have been in alignment.

See our latest analysis for adidas

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, adidas achieved compound earnings per share (EPS) growth of 10% per year. This EPS growth is slower than the share price growth of 15% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That’s not necessarily surprising considering the five-year track record of earnings growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that adidas has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, adidas’ TSR for the last 5 years was 108%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

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Tue Jul 13 17:00:26 +0000 2021

adidas shareholders gained a total return of 19% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 16% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Consider risks, for instance. Every company has them, and we’ve spotted 2 warning signs for adidas you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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.

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