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Did Rio Tinto Group's (LON:RIO) Share Price Deserve to Gain 64%?

Simply Wall St

It might be of some concern to shareholders to see the Rio Tinto Group (LON:RIO) share price down 17% in the last month. But that doesn't change the fact that the returns over the last three years have been pleasing. To wit, the share price did better than an index fund, climbing 64% during that period.

Check out our latest analysis for Rio Tinto Group

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During three years of share price growth, Rio Tinto Group achieved compound earnings per share growth of 607% per year. This EPS growth is higher than the 18% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.06.

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

LSE:RIO Past and Future Earnings, August 19th 2019

We know that Rio Tinto Group has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Rio Tinto Group's financial health with this free report on its balance sheet.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Rio Tinto Group the TSR over the last 3 years was 105%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Rio Tinto Group has rewarded shareholders with a total shareholder return of 21% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 10% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you would like to research Rio Tinto Group in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

But note: Rio Tinto Group 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 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.