When we invest, we typically look for stocks that outperform the market average. And the truth is, if you buy a quality business at the right price, you can make big profits.For example, in the long run iA Financial Corporation Co., Ltd. (TSE:IAG) shareholders have enjoyed a 70% share price increase over the past five years, well above the market return of around 36% (not including dividends). However, recent returns haven't been as impressive, with the share price returning just 7.2% over the last year, including dividends.
Let's look at the underlying fundamentals over the long term and see if they are aligned with shareholder returns.
Check out our latest analysis for iA Financial.
To paraphrase Benjamin Graham, in the short term the market is a voting machine, but in the long term it is a weighing machine. One way he looks at how market sentiment has changed over time is to look at the interaction between a company's stock price and his earnings per share (EPS).
During the five-year period of share price growth, iA Financial achieved compound earnings per share (EPS) growth of 6.7% per year. This EPS growth is slower than the 11% annual growth in the share price over the same period. So it's fair to think the market has a higher valuation for this business than it did five years ago. This isn't necessarily surprising, given its track record of profit growth over the past five years.
The company's earnings per share (long-term) are depicted in the image below (click to see the exact numbers).
Perhaps worth noting is that we saw significant insider buying in the last quarter, which we consider a positive. On the other hand, we think revenue and profit trends are more important metrics for the business.It might be well worth taking a look at ours free Reports on iA Financial's earnings, revenue and cash flow.
What will happen to the dividend?
As well as measuring share price return, investors should also consider total shareholder return (TSR). 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 increases and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return delivered by a stock. For iA Financial, the TSR for the last 5 years is 101%. This exceeds the stock return mentioned earlier. Therefore, the dividend paid by the company is total Shareholder returns.
different perspective
iA Financial offered a TSR of 7.2% over the last twelve months. However, its returns are below the market. Perhaps the fact that the company has provided shareholders with a TSR of 15% per annum over five years is a good sign that its long-term track record is even better. There's a good chance the business will continue to perform well despite the slowing share price growth. If you want to investigate this stock further, the data on insider purchases is an obvious place to start. Click here to see who bought the stock and the price they paid.
iA Financial isn't the only company with insiders buying stock.So take a look at this free A 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 Canadian 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
