REA Group (ASX:REA) shareholders have earned a 17% CAGR over the last five years
The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For example, the REA Group Limited (ASX:REA) share price has soared 108% in the last half decade. Most would be very happy with that. In the last week the share price is up 1.4%.
So let's investigate 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 REA Group
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, REA Group achieved compound earnings per share (EPS) growth of 24% per year. The EPS growth is more impressive than the yearly share price gain of 16% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. Having said that, the market is still optimistic, given the P/E ratio of 104.34.
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 REA Group'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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for REA Group the TSR over the last 5 years was 120%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that REA Group shareholders have received a total shareholder return of 33% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 17%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Case in point: We've spotted 2 warning signs for REA Group you should be aware of.
Of course REA 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 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.
About ASX:REA
REA Group
Engages in online property advertising business in Australia, India, the United States, Malaysia, Singapore, Thailand, Vietnam, and internationally.
Flawless balance sheet with reasonable growth potential.