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Does Securitas's (STO:SECU B) Share Price Gain of 72% Match Its Business Performance?

Simply Wall St

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, long term Securitas AB (STO:SECU B) shareholders have enjoyed a 72% share price rise over the last half decade, well in excess of the market return of around 24% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 8.5% in the last year , including dividends .

See our latest analysis for Securitas

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, Securitas managed to grow its earnings per share at 11% a year. So the EPS growth rate is rather close to the annualized share price gain of 11% per year. This indicates that investor sentiment towards the company has not changed a great deal. Rather, the share price has approximately tracked EPS growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

OM:SECU B Past and Future Earnings, December 5th 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 interactive report on Securitas's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Securitas's TSR for the last 5 years was 97%, 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

Securitas provided a TSR of 8.5% over the last twelve months. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 15% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Securitas by clicking this link.

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 SE exchanges.

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.

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. Thank you for reading.