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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you’d like to see the share price move up more than the market average. Unfortunately for shareholders, while the The Travelers Companies, Inc. (NYSE:TRV) share price is up 55% in the last five years, that’s less than the market return. But if you include dividends then the return is market-beating. Zooming in, the stock is actually down 6.8% in the last year.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Travelers Companies’s earnings per share are down 1.0% per year, despite strong share price performance over five years. So it’s hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it’s worth taking a look at other metrics to try to understand the share price movements.
The revenue growth of 2.6% per year hardly seems impressive. So why is the share price up? It’s not immediately obvious to us, but a closer look at the company’s progress over time might yield answers.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Travelers Companies is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Travelers Companies in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Travelers Companies the TSR over the last 5 years was 74%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in Travelers Companies had a tough year, with a total loss of 4.6% (including dividends), against a market gain of about 4.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 12%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research Travelers Companies in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.