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While it may not be enough for some shareholders, we think it is good to see the Home Capital Group Inc. (TSE:HCG) share price up 27% in a single quarter. But don't envy holders -- looking back over 5 years the returns have been really bad. In fact, the share price has declined rather badly, down some 58% in that time. So is the recent increase sufficient to restore confidence in the stock? Not yet. However, in the best case scenario (far from fait accompli), this improved performance might be sustained.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 five years of share price growth, Home Capital Group moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics might give us a better handle on how its value is changing over time.
It could be that the revenue decline of 11% per year is viewed as evidence that Home Capital Group is shrinking. That could explain the weak share price.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling Home Capital Group stock, you should check out this free report showing analyst profit forecasts.
A Dividend Lost
It's important to keep in mind that we've been talking about the share price returns, which don't include dividends, while the total shareholder return does. Many would argue the TSR gives a more complete picture of the value a stock brings to its holders. Over the last 5 years, Home Capital Group generated a TSR of -54%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
It's good to see that Home Capital Group has rewarded shareholders with a total shareholder return of 34% in the last twelve months. That certainly beats the loss of about 15% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
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 CA 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.