You can receive the average market return by buying a low-cost index fund. But you can make better returns by buying undervalued shares. To wit, Genworth Mortgage Insurance Australia Limited (ASX:GMA) shares are up 24% in three years, besting the market return. More recently the stock has gained 17% in a year, which isn't too bad.
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 Genworth Mortgage Insurance Australia
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years of share price growth, Genworth Mortgage Insurance Australia moved from a loss to profitability. So we would expect a higher share price over the period.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Genworth Mortgage Insurance Australia has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Genworth Mortgage Insurance Australia stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Genworth Mortgage Insurance Australia the TSR over the last 3 years was 65%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Genworth Mortgage Insurance Australia shareholders have received a total shareholder return of 31% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 8%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Genworth Mortgage Insurance Australia (of which 1 is a bit concerning!) you should know about.