Raymond James Financial's (NYSE:RJF) five-year total shareholder returns outpace the underlying earnings growth

Raymond James Financial, Inc. (NYSE:RJF) shareholders might be concerned after seeing the share price drop 22% in the last quarter. But that doesn't change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 167% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Ultimately business performance will determine whether the stock price continues the positive long term trend.

Although Raymond James Financial has shed US$3.1b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven 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.

During five years of share price growth, Raymond James Financial achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is lower than the 22% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Raymond James Financial's earnings, revenue and cash flow .

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Raymond James Financial the TSR over the last 5 years was 188%, 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

While the broader market lost about 1.9% in the twelve months, Raymond James Financial shareholders did even worse, losing 2.2% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 24%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research Raymond James Financial in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like Raymond James Financial 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.