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By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, TP ICAP Group PLC (LON:TCAP) shareholders have seen the share price rise 86% over three years, well in excess of the market return (2.0%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 49% in the last year, including dividends.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
View our latest analysis for TP ICAP Group
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 three years of share price growth, TP ICAP Group achieved compound earnings per share growth of 26% per year. We note that the 23% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. This observation indicates that the market's attitude to the business hasn't changed all that much. Quite to the contrary, the share price has arguably reflected the EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on TP ICAP Group's earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, TP ICAP Group's TSR for the last 3 years was 127%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that TP ICAP Group shareholders have received a total shareholder return of 49% over the last year. Of course, that includes the dividend. There's no doubt those recent returns are much better than the TSR loss of 1.0% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand TP ICAP Group better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for TP ICAP Group you should know about.