Innospec's (NASDAQ:IOSP) five-year earnings growth trails the favorable shareholder returns

Innospec Inc. (NASDAQ:IOSP) shareholders might be concerned after seeing the share price drop 16% in the last quarter. On the bright side the share price is up over the last half decade. However we are not very impressed because the share price is only up 32%, less than the market return of 107%.

The past week has proven to be lucrative for Innospec investors, so let's see if fundamentals drove the company's five-year performance.

View our latest analysis for Innospec

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.

During five years of share price growth, Innospec achieved compound earnings per share (EPS) growth of 9.8% per year. This EPS growth is higher than the 6% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

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

We know that Innospec has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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 or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Innospec, it has a TSR of 41% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Innospec shareholders gained a total return of 6.8% during the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 7% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. If you would like to research Innospec in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

For those who like to find winning investments this free list of undervalued 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.