Cabot (NYSE:CBT) stock has outperformed underlying earnings growth over the past three years.

Buying index funds allows investors to approximate average market returns. But if you pick good individual stocks, you can get good returns. for example, Cabot Corporation (NYSE:CBT) stockholders have seen their stock gain 56% over three years, well above market returns (17%, excluding dividends). Meanwhile, recent returns haven’t been great, with shareholders only up 22%, including dividends.

The stock added $171 million to its market cap in the past week alone, so let’s see if underlying performance is driving long-term returns.

See the latest analysis from Cabot

To quote Buffett, “Ships will sail the world, but the Flat Earth Society will thrive. In the marketplace, there will continue to be a great discrepancy between price and value…” One way to see how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).

Cabot was able to grow EPS by 11% annually over three years, boosting the stock price. By comparison, the 16% year-on-year increase in stock prices has outpaced EPS growth. This suggests that it has earned the trust of market participants with its business development over the past few years. It’s not uncommon to see markets “revalue” stocks after several years of growth.

The image below shows how the EPS changed over time (click the image to see the exact values).

Take a closer look at Cabot’s key metrics by reviewing interactive graphs of Cabot’s earnings, earnings and cash flow.

Dividend

When looking at return on investment, it’s important to consider the following differences: Total shareholder return (TSR) and stock price returnThe TSR includes the value of dividends (assuming they have been reinvested) and discounted capital raising or spin-off earnings, while the stock return reflects only changes in the stock price. It’s no exaggeration to say that the TSR provides a more complete picture of dividend-paying stocks. Coincidentally, Cabot’s TSR over the past three years has been his 69%, outperforming the aforementioned stock return. And there are no prizes to speculate that dividend payouts account for the difference primarily!

another point of view

We are pleased to report that Cabot shareholders earned a total shareholder return of 22% last year. Including dividends, of course. This increase is better than his 4% annual TSR for five years. So the sentiment around the company seems to be positive these days. Optimists can view the recent improvement in TSR as an indication that the business itself is improving over time. I find it very interesting to look at stock prices over the long term as an indicator of performance. But for true insight, other information must also be considered. To do that, you need to learn: four warning signs We found cabots (including one that was a little off-putting).

If you like buying stocks with management, you might like this one freedom company list. (Hint: Insiders are buying).

Please note that the market returns quoted in this article reflect market-weighted average returns for stocks currently traded on US exchanges.

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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price sensitive company announcements or qualitative materials. Is not …