Brookfield Asset Management's (TSE:BAM.A) five-year earnings growth trails the stellar shareholder returns

By
Simply Wall St
Published
September 27, 2021
TSX:BAM.A
Source: Shutterstock

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. Long term Brookfield Asset Management Inc. (TSE:BAM.A) shareholders would be well aware of this, since the stock is up 128% in five years. In the last week the share price is up 4.6%.

The past week has proven to be lucrative for Brookfield Asset Management investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Brookfield Asset Management

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years of share price growth, Brookfield Asset Management achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is reasonably close to the 18% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Indeed, it would appear the share price is reacting to the EPS.

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

earnings-per-share-growth
TSX:BAM.A Earnings Per Share Growth September 28th 2021

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Brookfield Asset Management's earnings, revenue and cash flow.

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 Brookfield Asset Management the TSR over the last 5 years was 145%, 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

It's nice to see that Brookfield Asset Management shareholders have received a total shareholder return of 60% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 20%. 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. To that end, you should learn about the 4 warning signs we've spotted with Brookfield Asset Management (including 1 which is a bit concerning) .

Brookfield Asset Management is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

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