The past five-year earnings decline for Insignia Financial (ASX:IFL) likely explains shareholders long-term losses

This week we saw the Insignia Financial Ltd. (ASX:IFL) share price climb by 10%. But that doesn't change the fact that the returns over the last half decade have been disappointing. In fact, the share price has declined rather badly, down some 66% in that time. So is the recent increase sufficient to restore confidence in the stock? Not yet. But it could be that the fall was overdone.

On a more encouraging note the company has added AU$184m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

View our latest analysis for Insignia Financial

Given that Insignia Financial only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

Over five years, Insignia Financial grew its revenue at 20% per year. That's better than most loss-making companies. In contrast, the share price is has averaged a loss of 11% per year - that's quite disappointing. It's safe to say investor expectations are more grounded now. Given the revenue growth we'd consider the stock to be quite an interesting prospect if the company has a clear path to profitability.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Insignia Financial is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Insignia Financial the TSR over the last 5 years was -53%, 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

Insignia Financial shareholders gained a total return of 2.3% during the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 9% endured over half a decade. So this might be a sign the business has turned its fortunes around. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for Insignia Financial you should be aware of, and 1 of them is a bit unpleasant.

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 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.