Arbuthnot Banking Group (LON:ARBB) shareholders have endured a 5.5% loss from investing in the stock five years ago
Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. So we wouldn't blame long term Arbuthnot Banking Group PLC (LON:ARBB) shareholders for doubting their decision to hold, with the stock down 19% over a half decade.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
View our latest analysis for Arbuthnot Banking Group
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
While the share price declined over five years, Arbuthnot Banking Group actually managed to increase EPS by an average of 123% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
It's strange to see such muted share price performance despite sustained growth. Perhaps a clue lies in other metrics.
The steady dividend doesn't really explain why the share price is down. It's not immediately clear to us why the stock price is down but further research might provide some answers.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free report showing analyst forecasts should help you form a view on Arbuthnot Banking Group
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Arbuthnot Banking Group's TSR for the last 5 years was -5.5%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that Arbuthnot Banking Group has rewarded shareholders with a total shareholder return of 19% in the last twelve months. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 1.1% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Arbuthnot Banking Group better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for Arbuthnot Banking Group you should be aware of, and 1 of them is concerning.
There are plenty of other companies that have insiders buying up shares. You probably do 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 British 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.
