It might be of some concern to shareholders to see the The Interpublic Group of Companies, Inc. (NYSE:IPG) share price down 11% in the last month. But at least the stock is up over the last five years. However we are not very impressed because the share price is only up 28%, less than the market return of 66%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 25% drop, in the last year.
Although Interpublic Group of Companies has shed US$360m from its market cap this week, let’s take a look at its longer term fundamental trends and see if they’ve driven returns.
Check out our latest analysis for Interpublic Group of Companies
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).
Over half a decade, Interpublic Group of Companies managed to grow its earnings per share at 11% a year. This EPS growth is higher than the 5% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.65.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worth while taking a look at ours free report on Interpublic Group of Companies’ earnings, revenue and cash flow.
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. In the case of Interpublic Group of Companies, it has a TSR of 56% for the last 5 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 16% in the twelve months, Interpublic Group of Companies shareholders did even worse, losing 23% (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. Longer term investors wouldn’t be so upset, since they would have made 9%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Interpublic Group of Companies better, we need to consider many other factors. Take risks, for example – Interpublic Group of Companies has 1 warning sign we think you should be aware of.
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 US 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 into account 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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