Passive investing in index funds has long been considered a safe way to generate returns that roughly match the overall market. However, some investors prefer to take a more hands-on approach by picking individual stocks that they believe will outperform the market. One such company that has shown impressive market-beating returns is Kelly Services, Inc. (NASDAQ: KELY.A).
Over the past year, the share price of Kelly Services has increased by 33%, surpassing the market return of around 18%. This strong performance has caught the attention of investors, who are hopeful that the company can sustain this out-performance over the long term, leading to even greater returns.
However, when we look at the longer-term returns, things are not as rosy. The stock has actually fallen by 1.1% in the last three years. To truly assess the company’s performance, it’s important to examine the underlying fundamentals over the longer term and determine if they align with shareholders’ returns.
One way to analyze a company’s performance is by comparing earnings per share (EPS) and share price changes over time. This can give us insights into how investor attitudes towards the company have evolved. In the case of Kelly Services, the company has managed to grow its earnings per share over the past year, moving from a loss to a profit. While this is encouraging, it’s worth considering other metrics to gauge growth and understand share price movements when a company is on the cusp of profitability.
The modest 1.6% dividend yield offered by Kelly Services may not be a significant factor in supporting the share price. Additionally, while revenue has remained relatively flat year on year, a closer look at the data may provide some insights into the market’s optimism.
Examining the balance sheet strength of a company is crucial in assessing its performance. While we don’t have the specific details here, it is worth reviewing Kelly Services’ financial position over time to gain a better understanding of its stability.
When assessing investment returns, it’s important to consider the difference between total shareholder return (TSR) and share price return. The TSR takes into account any dividends and other value-enhancing actions, providing a more comprehensive picture of the overall return generated by a stock. In the case of Kelly Services, the TSR over the past year was 35%, surpassing the share price return mentioned earlier. Dividend payments largely explain this difference.
While the short-term TSR gain is promising, with a 35% return over one year, the long-term performance of Kelly Services raises some concerns. Over the past five years, the TSR has shown a loss of 2% per year. This discrepancy makes it necessary to consider other factors and potential risks associated with the company.
Investors should always be cautious when making investment decisions and conduct a thorough analysis of not just the financials but also other qualitative factors that could impact a company’s future performance. It’s essential to consider individual risk tolerance and other investment opportunities before making any decisions.
In conclusion, while Kelly Services has demonstrated market-beating returns in the short term, it is advisable for investors to take a comprehensive approach when evaluating the company’s potential for long-term success. Conducting thorough research and understanding the risks associated with the stock is crucial for making informed investment decisions.
– Passive investing: An investment strategy that aims to match the overall market’s returns by investing in index funds or other vehicles that track broad market indexes.
– Index funds: Mutual funds or exchange-traded funds (ETFs) that replicate the performance of a specific index, such as the S&P 500.
– Share price return: The percentage change in the price of a stock over a given period.
– Total shareholder return (TSR): The total return generated by a stock, including share price appreciation, dividends, and other value-enhancing actions.
– Simply Wall St – https://simplywall.st/