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For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Employers Holdings, Inc. (NYSE:EIG) shareholders, since the share price is down 13% in the last three years, falling well short of the market return of around 37%.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for Employers Holdings
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 the three years that the share price fell, Employers Holdings' earnings per share (EPS) dropped by 28% each year. This fall in the EPS is worse than the 5% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Employers Holdings' TSR for the last 3 years was -3.4%, 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
While it's never nice to take a loss, Employers Holdings shareholders can take comfort that , including dividends,their trailing twelve month loss of 1.0% wasn't as bad as the market loss of around 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 1.5% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Employers Holdings better, we need to consider many other factors. For instance, we've identified 1 warning sign for Employers Holdings that you should be aware of.