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Arch Capital Group Ltd. (NASDAQ:ACGL) shareholders might be concerned after seeing the share price drop 18% in the last quarter. But that doesn't change the fact that shareholders have received really good returns over the last five years. Indeed, the share price is up an impressive 114% in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Ultimately business performance will determine whether the stock price continues the positive long term trend.
The past week has proven to be lucrative for Arch Capital Group investors, so let's see if fundamentals drove the company's five-year performance.
Check out our latest analysis for Arch Capital Group
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, Arch Capital Group managed to grow its earnings per share at 34% a year. The EPS growth is more impressive than the yearly share price gain of 16% over the same period. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.12.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Arch Capital Group has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Arch Capital Group's financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Arch Capital Group the TSR over the last 5 years was 125%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Arch Capital Group has rewarded shareholders with a total shareholder return of 32% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 18% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. To that end, you should be aware of the 1 warning sign we've spotted with Arch Capital Group .