Goosehead Insurance's (NASDAQ:GSHD) five-year earnings growth trails the favorable shareholder returns

The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Goosehead Insurance, Inc (NASDAQ:GSHD) has fallen short of that second goal, with a share price rise of 81% over five years, which is below the market return. Zooming in, the stock is up a respectable 17% in the last year.

Since the stock has added US$137m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Goosehead Insurance

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.

Over half a decade, Goosehead Insurance managed to grow its earnings per share at 24% a year. The EPS growth is more impressive than the yearly share price gain of 13% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. Of course, with a P/E ratio of 113.98, the market remains optimistic.

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

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Goosehead Insurance's earnings, revenue and cash flow.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Goosehead Insurance's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Goosehead Insurance shareholders, and that cash payout contributed to why its TSR of 85%, over the last 5 years, is better than the share price return.

A Different Perspective

Goosehead Insurance shareholders are up 17% for the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 13% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand Goosehead Insurance better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Goosehead Insurance you should be aware of, and 1 of them makes us a bit uncomfortable.

Goosehead Insurance 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.