Altus Group's (TSE:AIF) five-year earnings growth trails the 11% YoY shareholder returns

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Altus Group share price has climbed 59% in five years, easily topping the market return of 45% (ignoring dividends).

Since the stock has added CA$177m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Altus 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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, Altus Group achieved compound earnings per share (EPS) growth of 27% per year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. So one could conclude that the broader market has become more cautious towards the stock. Of course, with a P/E ratio of 221.13, the market remains optimistic.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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. Dive deeper into the earnings by checking this interactive graph of Altus Group'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). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Altus Group, it has a TSR of 69% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Altus Group shareholders have received a total shareholder return of 50% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 11% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 be aware of the 3 warning signs we've spotted with Altus Group .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

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