London Stock Exchange Group (LON:LSEG) shareholders have earned a 18% CAGR over the last three years

By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the London Stock Exchange Group plc (LON:LSEG) share price is up 59% in the last three years, clearly besting the market decline of around 1.4% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 26%, including dividends.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for London Stock Exchange 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.

During three years of share price growth, London Stock Exchange Group achieved compound earnings per share growth of 26% per year. This EPS growth is higher than the 17% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. Having said that, the market is still optimistic, given the P/E ratio of 83.03.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into London Stock Exchange Group's key metrics by checking this interactive graph of London Stock Exchange Group's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of London Stock Exchange Group, it has a TSR of 65% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that London Stock Exchange Group shareholders have received a total shareholder return of 26% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 11%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

Of course London Stock Exchange 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.