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While it may not be enough for some shareholders, we think it is good to see the QBE Insurance Group Limited (ASX:QBE) share price up 15% in a single quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 37%, which falls well short of the return you could get by buying an index fund.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Looking back five years, both QBE Insurance Group's share price and EPS declined; the latter at a rate of 5.5% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 8.8% per year, over the period. This implies that the market was previously too optimistic about the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on QBE Insurance Group's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, QBE Insurance Group's TSR for the last 5 years was -23%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 7.3% in the twelve months, QBE Insurance Group shareholders did even worse, losing 18% (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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4.2% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 2 warning signs we've spotted with QBE Insurance Group .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
This article by Simply Wall St is general in nature. 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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