Essent Group's (NYSE:ESNT) three-year earnings growth trails the 8.7% YoY shareholder returns

Essent Group Ltd. (NYSE:ESNT) shareholders have seen the share price descend 12% over the month. But at least the stock is up over the last three years. However, it's unlikely many shareholders are elated with the share price gain of 21% over that time, given the rising market.

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 Essent Group

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. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, Essent Group achieved compound earnings per share growth of 7.5% per year. We note that the 7% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. This observation indicates that the market's attitude to the business hasn't changed all that much. Rather, the share price has approximately tracked EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Essent Group 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. We note that for Essent Group the TSR over the last 3 years was 29%, 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

Essent Group shareholders gained a total return of 18% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This suggests the company might be improving over time. Before spending more time on Essent Group it might be wise to click here to see if insiders have been buying or selling shares.

We will like Essent Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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