It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For instance the Evolution Gaming Group AB (publ) (STO:EVO) share price is 150% higher than it was three years ago. Most would be happy with that. It’s also good to see the share price up 37% over the last quarter.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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.
During three years of share price growth, Evolution Gaming Group achieved compound earnings per share growth of 61% per year. The average annual share price increase of 36% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Evolution Gaming Group, it has a TSR of 156% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We’re pleased to report that Evolution Gaming Group rewarded shareholders with a total shareholder return of 27% over the last year. And yes, that does include the dividend. The TSR has been even better over three years, coming in at 37% per year. 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.
Evolution Gaming Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE 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 firstname.lastname@example.org. 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.