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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Radian Group Inc. (NYSE:RDN) has fallen short of that second goal, with a share price rise of 84% over five years, which is below the market return. However, more recent buyers should be happy with the increase of 28% over the last year.
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, Radian Group achieved compound earnings per share (EPS) growth of 7.4% per year. This EPS growth is lower than the 13% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Radian Group has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Radian Group's balance sheet strength 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. 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 Radian Group the TSR over the last 5 years was 91%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Radian Group shareholders are up 32% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 14% over half a decade This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Radian Group better, we need to consider many other factors. Take risks, for example - Radian Group has 1 warning sign we think you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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