Did Tatton Asset Management's (LON:TAM) Share Price Deserve to Gain 36%?

By
Simply Wall St
Published
November 02, 2020

By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the Tatton Asset Management plc (LON:TAM) share price is up 36% in the last three years, clearly besting the market decline of around 24% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 31% , including dividends .

Check out our latest analysis for Tatton Asset Management

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Tatton Asset Management was able to grow its EPS at 94% per year over three years, sending the share price higher. The average annual share price increase of 11% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.

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

AIM:TAM Earnings Per Share Growth November 2nd 2020

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Tatton Asset Management's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Tatton Asset Management the TSR over the last 3 years was 51%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Tatton Asset Management shareholders have gained 31% (in total) over the last year. That includes the value of the dividend. That gain actually surpasses the 15% TSR it generated (per year) over three years. Given the track record of solid returns over varying time frames, it might be worth putting Tatton Asset Management on your watchlist. It's always interesting to track share price performance over the longer term. But to understand Tatton Asset Management better, we need to consider many other factors. For example, we've discovered 1 warning sign for Tatton Asset Management that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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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This article by Simply Wall St is general in nature. 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.
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