Those who invested in Cincinnati Financial (NASDAQ:CINF) a year ago are up 42%

A diverse portfolio of stocks will always have winners and losers. But if you're going to beat the market overall, you need to have individual stocks that outperform. One such company is Cincinnati Financial Corporation (NASDAQ:CINF), which saw its share price increase 38% in the last year, slightly above the market return of around 33% (not including dividends). Having said that, the longer term returns aren't so impressive, with stock gaining just 16% in three years.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Cincinnati Financial

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Cincinnati Financial was able to grow EPS by 59% in the last twelve months. This EPS growth is significantly higher than the 38% increase in the share price. So it seems like the market has cooled on Cincinnati Financial, despite the growth. Interesting. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.08.

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

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Cincinnati 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. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Cincinnati Financial's TSR for the last 1 year was 42%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Cincinnati Financial has rewarded shareholders with a total shareholder return of 42% in the last twelve months. That's including the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Cincinnati Financial you should know about.

Cincinnati Financial is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

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.