Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Unfortunately the Legal & General Group Plc (LON:LGEN) share price slid 13% over twelve months. That contrasts poorly with the market decline of 2.9%. However, the longer term returns haven’t been so bad, with the stock down 9.1% in the last three years.
With the stock having lost 5.1% in the past week, it’s worth taking a look at business performance and seeing if there’s any red flags.
Check out our latest analysis for Legal & General Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 unfortunate twelve months during which the Legal & General Group share price fell, it actually saw its earnings per share (EPS) improve by 55%. Of course, the situation might betray previous over-optimism about growth.
It’s fair to say that the share price does not seem to be reflecting the EPS growth. So it’s well worth checking out some other metrics, too.
Legal & General Group’s dividend seems healthy to us, so we doubt that the yield is a concern for the market. We’d be more worried about the fact that revenue fell 46% year on year. So it seems likely that the weak revenue is making the market more cautious about the stock.
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. This free report showing analyst forecasts should help you form a view on Legal & General Group
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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, Legal & General Group’s TSR for the last 1 year was -6.8%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 2.9% in the twelve months, Legal & General Group shareholders did even worse, losing 6.8% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Case in point: We’ve spotted 2 warning signs for Legal & General Group you should be aware of, and 1 of them shouldn’t be ignored.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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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.