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Did You Miss GoCo Group's (LON:GOCO) 11% Share Price Gain?

Simply Wall St
·3-min read

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the GoCo Group plc (LON:GOCO) share price is up 11% in the last three years, clearly besting the market decline of around 20% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 7.6% in the last year , including dividends .

View our latest analysis for GoCo 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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years of share price growth, GoCo Group actually saw its earnings per share (EPS) drop 11% per year.

The strong decline in earnings per share suggests the market isn't using EPS to judge the company. 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.

The modest 0.8% dividend yield is unlikely to be propping up the share price. We severely doubt anyone is particularly impressed with the modest 2.3% three-year revenue growth rate. While we don't have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
earnings-and-revenue-growth

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for GoCo Group the TSR over the last 3 years was 15%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Pleasingly, GoCo Group's total shareholder return last year was 7.6%. And yes, that does include the dividend. So this year's TSR was actually better than the three-year TSR (annualized) of 5%. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand GoCo Group better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with GoCo Group .

We will like GoCo Group better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.