Investors in Hexagon (STO:HEXA B) have seen respectable returns of 81% over the past three years

Stock Analysis

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the Hexagon AB (publ) (STO:HEXA B) share price is up 74% in the last three years, clearly besting the market return of around 31% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 11% in the last year , including dividends .

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for Hexagon

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Hexagon was able to grow its EPS at 14% per year over three years, sending the share price higher. In comparison, the 20% per year gain in the share price outpaces the EPS growth. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Hexagon's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Hexagon, it has a TSR of 81% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

It's nice to see that Hexagon shareholders have received a total shareholder return of 11% over the last year. Of course, that includes the dividend. Having said that, the five-year TSR of 13% a year, is even better. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do 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 Swedish exchanges.

Find out whether Hexagon is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Hexagon AB (publ) provides geospatial and industrial enterprise solutions worldwide.

Solid track record with adequate balance sheet and pays a dividend.