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The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Australian Finance Group Limited (ASX:AFG) share price is up 26% in the last five years, that's less than the market return. Some buyers are laughing, though, with an increase of 21% in the last year.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Our free stock report includes 2 warning signs investors should be aware of before investing in Australian Finance Group. Read for free now.
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 five years of share price growth, Australian Finance Group actually saw its EPS drop 7.3% per year.
The strong decline in earnings per share suggests the market isn't using EPS to judge the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.
We note that the dividend has not increased, so that doesn't seem to explain the increase, either. But it's reasonably likely that the 12% annual compound revenue growth is considered evidence that Australian Finance Group has plenty of growth ahead of it. In that case, the company may be sacrificing current earnings per share to drive growth.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on Australian Finance Group's balance sheet strength is a great place to start, if you want to investigate the stock further.
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 Australian Finance Group the TSR over the last 5 years was 76%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!