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Should Hess (NYSE:HES) Be Disappointed With Their 40% Profit?

Simply Wall St

You can receive the average market return by buying a low-cost index fund. But you can make superior returns by picking better-than average stocks. For example, the Hess Corporation ( NYSE:HES ) share price is up 40% in the last three years, slightly above the market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 7.0% in the last year.

See our latest analysis for Hess

Hess isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last 3 years Hess saw its revenue grow at 11% per year. That's pretty nice growth. The share price gain of 12% per year shows that the market is paying attention to this growth. Of course, valuation is quite sensitive to the rate of growth. Keep in mind that the strength of the balance sheet impacts the options open to the company.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

NYSE:HES Income Statement, September 20th 2019

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Hess

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Hess, it has a TSR of 48% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Hess shareholders are down 5.4% for the year (even including dividends) , but the market itself is up 3.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 5.6% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Hess by clicking this link.

Hess is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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 editorial-team@simplywallst.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.