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The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. But Aon plc (NYSE:AON) has fallen short of that second goal, with a share price rise of 74% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 23% share price gain over twelve months.
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.
See our latest analysis for Aon
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 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 five years of share price growth, Aon achieved compound earnings per share (EPS) growth of 14% per year. So the EPS growth rate is rather close to the annualized share price gain of 12% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. In fact, the share price seems to largely reflect the EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for Aon the TSR over the last 5 years was 81%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Aon's TSR for the year was broadly in line with the market average, at 24%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 13%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. It's always interesting to track share price performance over the longer term. But to understand Aon better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Aon you should know about.