Investors in NN Group (AMS:NN) have seen impressive returns of 171% over the past five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term NN Group N.V. (AMS:NN) shareholders have enjoyed a 85% share price rise over the last half decade, well in excess of the market return of around 50% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 43%, including dividends.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

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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. 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.

NN Group's earnings per share are down 0.3% per year, despite strong share price performance over five years.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

We note that the dividend is higher than it was previously - always nice to see. It could be that the company is reaching maturity and dividend investors are buying for the yield.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that NN Group has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think NN Group will earn in the future (free profit forecasts).

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 NN Group the TSR over the last 5 years was 171%, 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 good to see that NN Group has rewarded shareholders with a total shareholder return of 43% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 22%. Therefore it seems like sentiment around the company has been positive lately. 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 NN Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with NN Group , and understanding them should be part of your investment process.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Dutch 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.