Yahoo Finance Those who invested in Serco Group (LON:SRP) three years ago are up 37%
By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, the Serco Group plc (LON:SRP) share price is up 35% in the last three years, clearly besting the market return of around 3.7% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 4.8% , including dividends .
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
View our latest analysis for Serco Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Serco Group was able to grow its EPS at 120% per year over three years, sending the share price higher. This EPS growth is higher than the 11% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.37.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Serco Group has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Serco Group's financial health with this free report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Serco Group's TSR for the last 3 years was 37%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Serco Group shareholders gained a total return of 4.8% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 0.8% per year over five year. It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 2 warning signs for Serco Group (1 shouldn't be ignored) that you should be aware of.
We will like Serco Group better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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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