Does EMIS Group's (LON:EMIS) Share Price Gain of 42% Match Its Business Performance?

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the EMIS Group plc (LON:EMIS) share price is up 42% in the last three years, clearly besting the market decline of around 8.9% (not including dividends).

See our latest analysis for EMIS Group

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During three years of share price growth, EMIS Group achieved compound earnings per share growth of 14% per year. We note that the 12% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. That suggests that the market sentiment around the company hasn't changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We like that insiders have been buying shares in the last twelve months. 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 EMIS 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, EMIS Group's TSR for the last 3 years was 56%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Although it hurts that EMIS Group returned a loss of 3.8% in the last twelve months, the broader market was actually worse, returning a loss of 4.3%. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

EMIS 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 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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