Yahoo Finance Elevance Health's (NYSE:ELV) earnings growth rate lags the 15% CAGR delivered to shareholders
Passive investing in index funds can generate returns that roughly match the overall market. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Elevance Health, Inc. (NYSE:ELV) share price is up 89% in the last five years, slightly above the market return. It's also good to see that the stock is up 17% in a year.
While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
Check out our latest analysis for Elevance Health
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Over half a decade, Elevance Health managed to grow its earnings per share at 12% a year. So the EPS growth rate is rather close to the annualized share price gain of 14% per year. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Elevance Health's 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 Elevance Health, it has a TSR of 100% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Elevance Health shareholders are up 18% for the year (even including dividends). Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 15% per year over five year. This suggests the company might be improving over time. 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. Even so, be aware that Elevance Health is showing 1 warning sign in our investment analysis , you should know about...
We will like Elevance Health better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 American 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.