The five-year underlying earnings growth at Credit Corp Group (ASX:CCP) is promising, but the shareholders are still in the red over that time

Generally speaking long term investing is the way to go. But no-one is immune from buying too high. For example the Credit Corp Group Limited (ASX:CCP) share price dropped 57% over five years. That's an unpleasant experience for long term holders. The last week also saw the share price slip down another 9.9%. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

If the past week is anything to go by, investor sentiment for Credit Corp Group isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Credit Corp Group

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

While the share price declined over five years, Credit Corp Group actually managed to increase EPS by an average of 2.1% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Looking to other metrics might better explain the share price change.

Revenue is actually up 8.8% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We know that Credit Corp Group has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Credit Corp Group will earn in the future (free profit forecasts).

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Credit Corp Group the TSR over the last 5 years was -51%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Credit Corp Group shareholders are down 10% for the year (even including dividends), but the market itself is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 9% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Before spending more time on Credit Corp Group it might be wise to click here to see if insiders have been buying or selling shares.

We will like Credit Corp Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian 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.