Vanguard founder Jack Bogle helped spearhead the low-cost index fund, putting average returns within reach of every investor. But you can make superior returns by picking better-than average stocks. For example, the OUTsurance Group Limited (JSE:OUT) share price is up 41% in the last three years, slightly above the market return. It's also good to see a healthy gain of 29% in the last year.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for OUTsurance Group
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 the three years of share price growth, OUTsurance Group actually saw its earnings per share (EPS) drop 16% per year.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
It may well be that OUTsurance Group revenue growth rate of 13% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today's shareholders might be right to hold on.
The graphic below depicts how earnings and revenue have changed over time (unveil 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. If you are thinking of buying or selling OUTsurance Group stock, you should check out this free report showing analyst profit 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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, OUTsurance Group's TSR for the last 3 years was 203%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!