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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Assured Guaranty Ltd. (NYSE:AGO) share price is up 82% in the last five years, that's less than the market return. On a brighter note, more newer shareholders are probably rather content with the 32% share price gain over twelve months.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Assured Guaranty
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Assured Guaranty achieved compound earnings per share (EPS) growth of 26% per year. This EPS growth is higher than the 13% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 5.97 also suggests market apprehension.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Assured Guaranty has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Assured Guaranty's financial health with this free report on its balance sheet.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Assured Guaranty, it has a TSR of 101% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Assured Guaranty shareholders have received returns of 34% over twelve months (even including dividends), which isn't far from the general market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 15%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Assured Guaranty better, we need to consider many other factors. Even so, be aware that Assured Guaranty is showing 4 warning signs in our investment analysis , and 1 of those is significant...