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Can You Imagine How Koninklijke Philips's (AMS:PHIA) Shareholders Feel About The 65% Share Price Increase?

Simply Wall St

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Koninklijke Philips N.V. ( AMS:PHIA ) shareholders have enjoyed a 65% share price rise over the last half decade, well in excess of the market return of around 28% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 8.7%, including dividends.

See our latest analysis for Koninklijke Philips

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, Koninklijke Philips achieved compound earnings per share (EPS) growth of 7.0% per year. This EPS growth is slower than the share price growth of 11% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. 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).

ENXTAM:PHIA Past and Future Earnings, July 22nd 2019

It is of course excellent to see how Koninklijke Philips has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Koninklijke Philips's financial health with this free report on its balance sheet .

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, Koninklijke Philips's TSR for the last 5 years was 90%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Koninklijke Philips has rewarded shareholders with a total shareholder return of 8.7% in the last twelve months. And that does include the dividend. However, the TSR over five years, coming in at 14% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. Before deciding if you like the current share price, check how Koninklijke Philips scores on these 3 valuation metrics .

But note: Koninklijke Philips may not be the best stock to buy . So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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