Yahoo Finance The one-year decline in earnings for NCC Group LON:NCC) isn't encouraging, but shareholders are still up 52% over that period
If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the NCC Group plc (LON:NCC) share price is up 49% in the last 1 year, clearly besting the market return of around 19% (not including dividends). That's a solid performance by our standards! And shareholders have also done well over the long term, with an increase of 39% in the last three years.
In light of the stock dropping 9.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive one-year return.
See our latest analysis for NCC Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Over the last twelve months, NCC Group actually shrank its EPS by 16%.
So we don't think that investors are paying too much attention to EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
We are skeptical of the suggestion that the 1.6% dividend yield would entice buyers to the stock. Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.
You can see below how earnings and revenue have changed over time (discover 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. So we recommend checking out this free report showing consensus forecasts
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 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 NCC Group, it has a TSR of 52% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that NCC Group shareholders have received a total shareholder return of 52% over one year. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 1.7% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - NCC Group has 3 warning signs we think you should be aware of.
NCC Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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