Paragon Banking Group (LON:PAG) jumps 4.8% this week, though earnings growth is still tracking behind three-year shareholder returns

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Paragon Banking Group PLC (LON:PAG) shareholders have seen the share price rise 55% over three years, well in excess of the market return (15%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 16% , including dividends .

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

View our latest analysis for Paragon Banking Group

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 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.

Paragon Banking Group was able to grow its EPS at 42% per year over three years, sending the share price higher. The average annual share price increase of 16% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 3.76.

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

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Paragon Banking Group'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. 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. As it happens, Paragon Banking Group's TSR for the last 3 years was 76%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Paragon Banking Group has rewarded shareholders with a total shareholder return of 16% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Paragon Banking Group better, we need to consider many other factors. For instance, we've identified 3 warning signs for Paragon Banking Group (1 is concerning) that you should be aware of.

Paragon Banking Group is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing 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.