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The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Intercontinental Exchange, Inc. (NYSE:ICE) has fallen short of that second goal, with a share price rise of 35% over five years, which is below the market return. Looking at the last year alone, the stock is up 5.2%.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Intercontinental Exchange
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Intercontinental Exchange actually saw its EPS drop 1.3% per year.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
We doubt the modest 1.5% dividend yield is attracting many buyers to the stock. On the other hand, Intercontinental Exchange's revenue is growing nicely, at a compound rate of 10% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Intercontinental Exchange is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Intercontinental Exchange stock, you should check out this free report showing analyst consensus estimates for future profits.
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. In the case of Intercontinental Exchange, it has a TSR of 44% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!