Investing in Emirates Insurance Company P.J.S.C (ADX:EIC) three years ago would have delivered you a 4.5% gain

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Emirates Insurance Company P.J.S.C. (ADX:EIC) shareholders have had that experience, with the share price dropping 18% in three years, versus a market return of about 159%. Furthermore, it's down 18% in about a quarter. That's not much fun for holders.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Emirates Insurance Company P.J.S.C

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the three years that the share price fell, Emirates Insurance Company P.J.S.C's earnings per share (EPS) dropped by 30% each year. This fall in the EPS is worse than the 7% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Emirates Insurance Company P.J.S.C's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Emirates Insurance Company P.J.S.C, it has a TSR of 4.5% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Emirates Insurance Company P.J.S.C shareholders are down 5.9% for the year (even including dividends), but the market itself is up 44%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 6% 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. It's always interesting to track share price performance over the longer term. But to understand Emirates Insurance Company P.J.S.C better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Emirates Insurance Company P.J.S.C (of which 2 make us uncomfortable!) you should know about.

Of course Emirates Insurance Company P.J.S.C 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 AE exchanges.

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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.