Royal Mail (LON:RMG) shareholders have earned a 76% return over the last year

Royal Mail plc (LON:RMG) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But that doesn't change the fact that the returns over the last year have been pleasing. Looking at the full year, the company has easily bested an index fund by gaining 72%.

So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.

View our latest analysis for Royal Mail

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 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 the last year Royal Mail grew its earnings per share (EPS) by 283%. It's fair to say that the share price gain of 72% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Royal Mail as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 6.72.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Royal Mail's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Royal Mail's TSR for the last 1 year was 76%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Royal Mail has rewarded shareholders with a total shareholder return of 76% 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. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 4 warning signs for Royal Mail you should be aware of, and 1 of them doesn't sit too well with us.

But note: Royal Mail 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.

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.

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