Positive earnings growth hasn't been enough to get Close Brothers Group (LON:CBG) shareholders a favorable return over the last three years

Investing in stocks inevitably means buying into some companies that perform poorly. But long term Close Brothers Group plc (LON:CBG) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 70% share price collapse, in that time. And more recent buyers are having a tough time too, with a drop of 48% in the last year. On the other hand the share price has bounced 7.9% over the last week.

While the stock has risen 7.9% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Close Brothers Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Although the share price is down over three years, Close Brothers Group actually managed to grow EPS by 9.2% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Close Brothers Group has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Close Brothers Group will earn in the future (free profit forecasts).

What About The Total Shareholder Return (TSR)?

We've already covered Close Brothers Group's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Close Brothers Group's TSR of was a loss of 64% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

While the broader market gained around 13% in the last year, Close Brothers Group shareholders lost 45%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Take risks, for example - Close Brothers Group has 1 warning sign we think you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com