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Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Insurance Australia Group Limited (ASX:IAG) have tasted that bitter downside in the last year, as the share price dropped 33%. That contrasts poorly with the market decline of 7.5%. However, the longer term returns haven't been so bad, with the stock down 19% in the last three years. Unhappily, the share price slid 3.3% in the last week.
View our latest analysis for Insurance Australia Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the unfortunate twelve months during which the Insurance Australia Group share price fell, it actually saw its earnings per share (EPS) improve by 28%. It could be that the share price was previously over-hyped.
The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.
We don't see any weakness in the Insurance Australia Group's dividend so the steady payout can't really explain the share price drop. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Insurance Australia Group has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Insurance Australia Group, it has a TSR of -31% for the last year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!