LPL Financial Holdings (NASDAQ:LPLA) jumps 10% this week, though earnings growth is still tracking behind five-year shareholder returns

By
Simply Wall St
Published
April 18, 2022
NasdaqGS:LPLA
Source: Shutterstock

Buying shares in the best businesses can build meaningful wealth for you and your family. And we've seen some truly amazing gains over the years. To wit, the LPL Financial Holdings Inc. (NASDAQ:LPLA) share price has soared 452% over five years. And this is just one example of the epic gains achieved by some long term investors. It's also good to see the share price up 22% over the last quarter.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for LPL Financial Holdings

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.

During five years of share price growth, LPL Financial Holdings achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is slower than the share price growth of 41% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NasdaqGS:LPLA Earnings Per Share Growth April 18th 2022

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on LPL Financial Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of LPL Financial Holdings, it has a TSR of 490% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that LPL Financial Holdings shareholders have received a total shareholder return of 47% over one year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 43% 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 LPL Financial Holdings better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for LPL Financial Holdings you should be aware of, and 1 of them is significant.

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 US exchanges.

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