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Diversification is a key tool for dealing with stock price volatility. Of course, the aim of the game is to pick stocks that do better than an index fund. One such company is NN Group N.V. (AMS:NN), which saw its share price increase 24% in the last year, slightly above the market return of around 22% (not including dividends). However, the longer term returns haven't been so impressive, with the stock up just 2.2% in the last three years.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for NN Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Over the last twelve months, NN Group actually shrank its EPS by 84%.
Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
For starters, we suspect the share price has been buoyed by the dividend, which was increased during the year. It could be that the company is reaching maturity and dividend investors are buying for the yield, pushing the price up in the process. Though we must add that the revenue growth of 101% year on year would have helped paint a pretty picture.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on NN Group's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, NN Group's TSR for the last 1 year was 35%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that NN Group has rewarded shareholders with a total shareholder return of 35% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 8%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 NN Group is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...