LSL Property Services (LON:LSL) stock performs better than its underlying earnings growth over last five years

By
Simply Wall St
Published
February 18, 2022
LSE:LSL
Source: Shutterstock

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of LSL Property Services plc (LON:LSL) stock is up an impressive 118% over the last five years. And in the last week the share price has popped 11%.

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.

See our latest analysis for LSL Property Services

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Over half a decade, LSL Property Services managed to grow its earnings per share at 3.1% a year. This EPS growth is lower than the 17% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

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

earnings-per-share-growth
LSE:LSL Earnings Per Share Growth February 18th 2022

We know that LSL Property Services has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, LSL Property Services' TSR for the last 5 years was 153%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that LSL Property Services shareholders have received a total shareholder return of 81% over the last year. And that does include the dividend. That's better than the annualised return of 20% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand LSL Property Services better, we need to consider many other factors. For example, we've discovered 2 warning signs for LSL Property Services (1 is potentially serious!) that you should be aware of before investing here.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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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