Stewart Information Services (NYSE:STC) shareholders notch a 13% CAGR over 5 years, yet earnings have been shrinking

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. But Stewart Information Services Corporation (NYSE:STC) has fallen short of that second goal, with a share price rise of 55% over five years, which is below the market return. Over the last twelve months the stock price has risen a very respectable 8.2%.

Since the stock has added US$112m 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 Stewart Information Services

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).

Stewart Information Services' earnings per share are down 11% per year, despite strong share price performance over five years.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

On the other hand, Stewart Information Services' revenue is growing nicely, at a compound rate of 3.5% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Stewart Information Services has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Stewart Information Services will earn in the future (free profit forecasts).

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 Stewart Information Services the TSR over the last 5 years was 82%, 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

Stewart Information Services provided a TSR of 11% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 13% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Take risks, for example - Stewart Information Services has 1 warning sign we think you should be aware of.

But note: Stewart Information Services may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.