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Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the Principal Financial Group, Inc. (NASDAQ:PFG) share price return of 26% over three years lags the market return in the same period. Zooming in, the stock is actually down 2.1% in the last year.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Principal Financial Group was able to grow its EPS at 12% per year over three years, sending the share price higher. The average annual share price increase of 8.0% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 9.82 also reflects the negative sentiment around the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Principal Financial Group's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Principal Financial Group's TSR for the last 3 years was 40%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that Principal Financial Group has rewarded shareholders with a total shareholder return of 2.0% in the last twelve months. Of course, that includes the dividend. However, the TSR over five years, coming in at 5.5% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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.
Principal Financial Group is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.