discoverIE Group's (LON:DSCV) earnings growth rate lags the 31% CAGR delivered to shareholders

By
Simply Wall St
Published
February 22, 2022
LSE:DSCV
Source: Shutterstock

It hasn't been the best quarter for discoverIE Group plc (LON:DSCV) shareholders, since the share price has fallen 27% in that time. But in stark contrast, the returns over the last half decade have impressed. It's fair to say most would be happy with 252% the gain in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Only time will tell if there is still too much optimism currently reflected in the share price.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

View our latest analysis for discoverIE 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 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).

Over half a decade, discoverIE Group managed to grow its earnings per share at 9.7% a year. This EPS growth is slower than the share price growth of 29% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 64.58.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
LSE:DSCV Earnings Per Share Growth February 22nd 2022

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for discoverIE Group the TSR over the last 5 years was 284%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that discoverIE Group has rewarded shareholders with a total shareholder return of 22% in the last twelve months. Of course, that includes the dividend. However, the TSR over five years, coming in at 31% per year, is even more impressive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with discoverIE Group , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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