When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, long term National Express Group PLC (LON:NEX) shareholders have enjoyed a 65% share price rise over the last half decade, well in excess of the market return of around 4.9% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 17% , including dividends .
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Over half a decade, National Express Group managed to grow its earnings per share at 24% a year. This EPS growth is higher than the 11% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for National Express Group the TSR over the last 5 years was 97%, 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
It's nice to see that National Express Group shareholders have received a total shareholder return of 17% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 15% per year), it would seem that the stock's performance has improved in recent times. 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 National Express Group better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with National Express Group .
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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