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Investors in Brooks Macdonald Group (LON:BRK) have made a respectable return of 36% over the past three years

By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, Brooks Macdonald Group plc (LON:BRK) shareholders have seen the share price rise 25% over three years, well in excess of the market decline (2.6%, not including dividends).

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

See our latest analysis for Brooks Macdonald Group

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Brooks Macdonald Group was able to grow its EPS at 42% per year over three years, sending the share price higher. The average annual share price increase of 8% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

It is of course excellent to see how Brooks Macdonald Group has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Brooks Macdonald Group stock, you should check out this FREE detailed report on its balance sheet.

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. We note that for Brooks Macdonald Group the TSR over the last 3 years was 36%, 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

Although it hurts that Brooks Macdonald Group returned a loss of 3.4% in the last twelve months, the broader market was actually worse, returning a loss of 5.1%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 4% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. Before forming an opinion on Brooks Macdonald Group you might want to consider these 3 valuation metrics.

We will like Brooks Macdonald 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.

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

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.

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