InterContinental Hotels Group (LON:IHG) stock performs better than its underlying earnings growth over last five years

While InterContinental Hotels Group PLC (LON:IHG) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 21% in the last quarter. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 139% higher today. To some, the recent pullback wouldn't be surprising after such a fast rise. Only time will tell if there is still too much optimism currently reflected in the share price.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Our free stock report includes 3 warning signs investors should be aware of before investing in InterContinental Hotels Group. Read for free now.

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 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, InterContinental Hotels Group managed to grow its earnings per share at 14% a year. This EPS growth is slower than the share price growth of 19% 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. That's not necessarily surprising considering the five-year track record of earnings growth.

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

It is of course excellent to see how InterContinental Hotels Group has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling InterContinental Hotels Group stock, you should check out this FREE detailed report on its balance sheet.

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 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 InterContinental Hotels Group, it has a TSR of 156% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that InterContinental Hotels Group shareholders have received a total shareholder return of 11% over one year. Of course, that includes the dividend. Having said that, the five-year TSR of 21% a year, is even better. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with InterContinental Hotels Group , and understanding them should be part of your investment process.

Of course InterContinental Hotels Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.