Investing in an index fund allows one to match market returns easily, but selecting individual stocks skillfully can yield superior returns. For instance, Fomento Económico Mexicano, S.A.B. de C.V. (BMV:FEMSAUBD) has seen its stock rise by 44% over the past three years, surpassing the market return of approximately 14% (excluding dividends). However, recent returns have been less impressive, with shareholders gaining only 2.4%, including dividends.
Given the stock’s 3.0% drop in the past week, we examined the company’s longer-term performance to understand if fundamentals have driven its three-year positive returns. Benjamin Graham once said that in the short term, the market is a voting machine, but in the long term, it’s a weighing machine. Over three years, FEMSA achieved a compound annual growth rate (CAGR) of 1.9% in earnings per share (EPS), lower than the average annual stock price increase of 13%. This suggests growing investor confidence despite slower EPS growth.
Additionally, total shareholder return (TSR), which includes dividends and any discounted spin-offs or rights issues, often exceeds stock price returns for dividend-paying companies. FEMSA’s TSR over the past three years was 57%, significantly boosted by dividends. Over the last twelve months, however, FEMSA’s TSR was just 2.4%, underperforming the market. A five-year view shows annualized returns of 9%, indicating sustained market positivity.
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