Earnings grew faster than the 20% return delivered to Employers Holdings (NYSE:EIG) shareholders over the last year

By
Simply Wall St
Published
November 21, 2021
NYSE:EIG
Source: Shutterstock

We believe investing is smart because history shows that stock markets go higher in the long term. But if when you choose to buy stocks, some of them will be below average performers. Unfortunately for shareholders, while the Employers Holdings, Inc. (NYSE:EIG) share price is up 17% in the last year, that falls short of the market return. On the other hand, longer term shareholders have had a tougher run, with the stock falling 13% in three years.

Although Employers Holdings has shed US$54m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Employers Holdings

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Employers Holdings was able to grow EPS by 58% in the last twelve months. This EPS growth is significantly higher than the 17% increase in the share price. Therefore, it seems the market isn't as excited about Employers Holdings as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 8.38.

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

earnings-per-share-growth
NYSE:EIG Earnings Per Share Growth November 22nd 2021

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Employers Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Employers Holdings, it has a TSR of 20% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Employers Holdings provided a TSR of 20% over the last twelve months. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Even so, be aware that Employers Holdings is showing 1 warning sign in our investment analysis , you should know about...

Employers Holdings is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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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