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Did You Manage To Avoid Legal & General Group's (LON:LGEN) 12% Share Price Drop?

Simply Wall St

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Legal & General Group Plc (LON:LGEN) shareholders over the last year, as the share price declined 12%. That's disappointing when you consider the market returned 1.1%. Longer term investors have fared much better, since the share price is up 4.3% in three years. In the last ninety days we've seen the share price slide 14%. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

See our latest analysis for Legal & General Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Even though the Legal & General Group share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth. It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.

Legal & General Group's dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

LSE:LGEN Income Statement, September 3rd 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Legal & General Group

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Legal & General Group's TSR for the last year was -6.6%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in Legal & General Group had a tough year, with a total loss of 6.6% (including dividends), against a market gain of about 1.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 4.5% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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 editorial-team@simplywallst.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.