Investing in Hiscox (LON:HSX) three years ago would have delivered you a 46% gain

By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, Hiscox Ltd (LON:HSX) shareholders have seen the share price rise 35% over three years, well in excess of the market decline (0.7%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 7.9% in the last year, including dividends.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Hiscox

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During three years of share price growth, Hiscox moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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. Dive deeper into the earnings by checking this interactive graph of Hiscox's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Hiscox the TSR over the last 3 years was 46%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Hiscox provided a TSR of 7.9% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 5% endured over half a decade. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Hiscox better, we need to consider many other factors. For instance, we've identified 3 warning signs for Hiscox (2 can't be ignored) that you should be aware of.

Hiscox is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com