It might be of some concern to shareholders to see the Selective Insurance Group, Inc. (NASDAQ:SIGI) share price down 25% in the last month. Looking further back, the stock has generated good profits over five years. After all, the share price is up a market-beating 74% in that time.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During five years of share price growth, Selective Insurance Group achieved compound earnings per share (EPS) growth of 13% per year. So the EPS growth rate is rather close to the annualized share price gain of 12% per year. That suggests that the market sentiment around the company hasn’t changed much over that time. Rather, the share price has approximately tracked EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Selective Insurance Group has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Selective Insurance Group will grow revenue in the future.
What About Dividends?
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. As it happens, Selective Insurance Group’s TSR for the last 5 years was 87%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 1.1% in the twelve months, Selective Insurance Group shareholders did even worse, losing 19% (even including dividends) . However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long term shareholders have made money, with a gain of 13% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Selective Insurance Group is showing 1 warning sign in our investment analysis , you should know about…
Of course Selective Insurance Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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