Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Encompass Health Corporation (NYSE:EHC) share price is up 37% in the last 1 year, clearly besting the market return of around 26% (not including dividends). So that should have shareholders smiling. Having said that, the longer term returns aren’t so impressive, with stock gaining just 2.1% in three years.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
View our latest analysis for Encompass Health
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year Encompass Health grew its earnings per share (EPS) by 41%. This EPS growth is reasonably close to the 37% increase in the share price. That suggests that the market sentiment around the company hasn’t changed much over that time. We don’t think its coincidental that the share price is growing at a similar rate to the earnings per share.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Encompass Health has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Encompass Health will grow revenue in the future.
A Different Perspective
It’s good to see that Encompass Health has rewarded shareholders with a total shareholder return of 38% in the last twelve months. Of course, that includes the dividend. That’s better than the annualised return of 13% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It’s always interesting to track share price performance over the longer term. But to understand Encompass Health better, we need to consider many other factors. For example, we’ve discovered 1 warning sign for Encompass Health that you should be aware of before investing here.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
