The Donegal Group (NASDAQ:DGIC.A) Share Price Is Up 27% And Shareholders Are Holding On

We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. Unfortunately for shareholders, while the Donegal Group Inc. (NASDAQ:DGIC.A) share price is up 27% in the last year, that falls short of the market return. The longer term returns have not been as good, with the stock price only 3.8% higher than it was three years ago.

View our latest analysis for Donegal Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the last year Donegal Group grew its earnings per share (EPS) by 9.7%. This EPS growth is significantly lower than the 27% increase in the share price. This indicates that the market is now more optimistic about the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how Donegal Group has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Donegal Group's financial health with this free report on its balance sheet.

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 Donegal Group the TSR over the last year was 32%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Donegal Group provided a TSR of 32% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 5% per year over five year. It is possible that returns will improve along with the business fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Donegal Group has 2 warning signs (and 1 which is potentially serious) we think you should know about.

Of course Donegal Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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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This article by Simply Wall St is general in nature. 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.
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