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When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. One great example is XPS Pensions Group plc (LON:XPS) which saw its share price drive 209% higher over five years. On the other hand, the stock price has retraced 8.9% in the last week. But this could be related to the soft market, with stocks selling off around 9.8% in the last week.
While the stock has fallen 8.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, XPS Pensions Group achieved compound earnings per share (EPS) growth of 33% per year. This EPS growth is higher than the 25% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 11.46 also suggests market apprehension.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that XPS Pensions Group has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on XPS Pensions Group's balance sheet strength is a great place to start, if you want to investigate the stock further.
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 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. We note that for XPS Pensions Group the TSR over the last 5 years was 289%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that XPS Pensions Group has rewarded shareholders with a total shareholder return of 54% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 31% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - XPS Pensions Group has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.