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By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, the London Stock Exchange Group plc (LON:LSEG) share price is up 65% in the last three years, clearly besting the market return of around 1.9% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 23%, including dividends.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for London Stock Exchange 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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During three years of share price growth, London Stock Exchange Group achieved compound earnings per share growth of 26% per year. The average annual share price increase of 18% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. Having said that, the market is still optimistic, given the P/E ratio of 87.40.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on London Stock Exchange Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for London Stock Exchange Group the TSR over the last 3 years was 72%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that London Stock Exchange Group has rewarded shareholders with a total shareholder return of 23% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 10%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.