Investors in Hanover Insurance Group (NYSE:THG) have made a notable return of 98% over the past five years
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term The Hanover Insurance Group, Inc. (NYSE:THG) shareholders have enjoyed a 68% share price rise over the last half decade, well in excess of the market return of around 51% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 10% , including dividends .
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for Hanover Insurance Group
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Hanover Insurance Group managed to grow its earnings per share at 33% a year. The EPS growth is more impressive than the yearly share price gain of 11% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Hanover Insurance Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Hanover Insurance Group's TSR for the last 5 years was 98%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Hanover Insurance Group shareholders have received a total shareholder return of 10% over the last year. Of course, that includes the dividend. Having said that, the five-year TSR of 15% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 1 warning sign for Hanover Insurance Group you should be aware of.
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 US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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