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Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Admiral Group plc (LON:ADM) shareholders, since the share price is down 18% in the last three years, falling well short of the market decline of around 12%. Furthermore, it's down 17% in about a quarter. That's not much fun for holders.
If the past week is anything to go by, investor sentiment for Admiral Group isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
See our latest analysis for Admiral Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Admiral Group saw its EPS decline at a compound rate of 16% per year, over the last three years. This fall in the EPS is worse than the 6% 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.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Admiral Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Admiral Group, it has a TSR of -1.2% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Admiral Group shareholders are down 5.8% for the year (even including dividends), but the market itself is up 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 Admiral Group is showing 1 warning sign in our investment analysis , you should know about...