If You Had Bought Arbuthnot Banking Group's (LON:ARBB) Shares Three Years Ago You Would Be Down 25%

While it may not be enough for some shareholders, we think it is good to see the Arbuthnot Banking Group PLC (LON:ARBB) share price up 24% in a single quarter. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 25% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

View our latest analysis for Arbuthnot Banking Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During the three years that the share price fell, Arbuthnot Banking Group's earnings per share (EPS) dropped by 7.7% each year. This fall in EPS isn't far from the rate of share price decline, which was 9% per year. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. It seems like the share price is reflecting the declining earnings per share.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

This free interactive report on Arbuthnot Banking Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Arbuthnot Banking Group's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Arbuthnot Banking Group shareholders, and that cash payout explains why its total shareholder loss of 20%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

Arbuthnot Banking Group shareholders are down 1.7% for the year, but the market itself is up 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 1.1% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For instance, we've identified 3 warning signs for Arbuthnot Banking Group that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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