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By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Crawford & Company (NYSE:CRD.B) share price is up 52% in the last three years, clearly besting the market return of around 25% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 1.0% in the last year, including dividends.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
View our latest analysis for Crawford
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 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 of share price growth, Crawford actually saw its earnings per share (EPS) drop 17% per year.
This means it's unlikely the market is judging the company based on earnings growth. Therefore, we think it's worth considering other metrics as well.
It could be that the revenue growth of 5.4% per year is viewed as evidence that Crawford is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Crawford has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Crawford stock, you should check out this free report showing analyst profit forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Crawford's TSR for the last 3 years was 68%, 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
Crawford shareholders gained a total return of 1.0% during the year. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 5% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Even so, be aware that Crawford is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...