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The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. To wit, the The Sage Group plc (LON:SGE) share price is 35% higher than it was a year ago, much better than the market decline of around 3.5% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Also impressive, the stock is up 33% over three years, making long term shareholders happy, too.
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.
Check out our latest analysis for Sage Group
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
During the last year, Sage Group actually saw its earnings per share drop 27%.
So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
However the year on year revenue growth of 14% would help. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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. This free report showing analyst forecasts should help you form a view on Sage Group
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sage Group's TSR for the last 1 year was 39%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!