It hasn't been the best quarter for Employers Holdings, Inc. (NYSE:EIG) shareholders, since the share price has fallen 14% in that time. While that's not great, the returns over five years have been decent. After all, the stock has performed better than the market (32%) in that time, and is up 34%.
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 five years of share price growth, Employers Holdings achieved compound earnings per share (EPS) growth of 8.9% per year. The EPS growth is more impressive than the yearly share price gain of 6.0% over the same period. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.35.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Employers Holdings has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Employers Holdings, it has a TSR of 45% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Although it hurts that Employers Holdings returned a loss of 9.7% in the last twelve months, the broader market was actually worse, returning a loss of 11%. Longer term investors wouldn't be so upset, since they would have made 7.7%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for Employers Holdings that you should be aware of before investing here.
But note: Employers Holdings 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 US exchanges.
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