Stock Analysis

Direct Line Insurance Group (LON:DLG) Long Term Shareholders are 12% In The Black

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LSE:DLG
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Direct Line Insurance Group plc (LON:DLG) shareholders should be happy to see the share price up 14% in the last quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 23%, which falls well short of the return you could get by buying an index fund.

Check out our latest analysis for Direct Line Insurance 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. 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.

Looking back five years, both Direct Line Insurance Group's share price and EPS declined; the latter at a rate of 1.8% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 5% per year, over the period. This implies that the market was previously too optimistic about the stock. The less favorable sentiment is reflected in its current P/E ratio of 11.06.

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

earnings-per-share-growth
LSE:DLG Earnings Per Share Growth December 24th 2020

It might be well worthwhile taking a look at our free report on Direct Line Insurance 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Direct Line Insurance Group the TSR over the last 5 years was 12%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Direct Line Insurance Group has rewarded shareholders with a total shareholder return of 4.9% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 2% 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. 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. Case in point: We've spotted 1 warning sign for Direct Line Insurance Group you should be aware of.

But note: Direct Line Insurance Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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