Asseco Poland beats Index.

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Asseco Poland S.A. (WSE:ACP) shareholders have seen the share price rise 44% over three years, well in excess of the market decline (5.5%, not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 19% , including dividends .

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Over the last three years, Asseco Poland failed to grow earnings per share, which fell 4.9% (annualized).

Given the share price resilience, we don’t think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. Therefore, it makes sense to look into other metrics.

We doubt the dividend payments explain the share price rise, since we don’t see any improvement in that regard. But it’s far more plausible that the revenue growth of 15% per year is viewed as evidence that Asseco Poland is growing. It could be that investors are content with the revenue growth on the basis that the company isn’t really focussed on profits just yet. And that might explain the higher price.

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