Smartgroup (ASX:SIQ) Shareholders Have Enjoyed A 80% Share Price Gain

It might be of some concern to shareholders to see the Smartgroup Corporation Ltd (ASX:SIQ) share price down 13% in the last month. But that doesn’t change the fact that the returns over the last three years have been pleasing. In fact, the company’s share price bested the return of its market index in that time, posting a gain of 80%.

View our latest analysis for Smartgroup

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 three years of share price growth, Smartgroup achieved compound earnings per share growth of 33% per year. This EPS growth is higher than the 22% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

ASX:SIQ Past and Future Earnings, March 19th 2019
ASX:SIQ Past and Future Earnings, March 19th 2019

We know that Smartgroup has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Smartgroup’s financial health with this free report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any 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, Smartgroup’s TSR for the last 3 years was 101%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Over the last year, Smartgroup shareholders took a loss of 19%, including dividends. In contrast the market gained about 8.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 26% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

If you are like me, then you will 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 AU exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.