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Buying shares in the best businesses can build meaningful wealth for you and your family. And highest quality companies can see their share prices grow by huge amounts. To wit, the Learning Technologies Group plc (LON:LTG) share price has soared 634% over five years. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 26% in about a quarter. We love happy stories like this one. The company should be really proud of that performance!
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for Learning Technologies Group
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Learning Technologies Group achieved compound earnings per share (EPS) growth of 57% per year. So the EPS growth rate is rather close to the annualized share price gain of 49% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Rather, the share price has approximately tracked EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Learning Technologies Group, it has a TSR of 653% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Learning Technologies Group has rewarded shareholders with a total shareholder return of 45% in the last twelve months. That's including the dividend. However, the TSR over five years, coming in at 50% per year, is even more impressive. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Learning Technologies Group , and understanding them should be part of your investment process.