Litigation Capital Management's (LON:LIT) 69% YoY earnings expansion surpassed the shareholder returns over the past year

It hasn't been the best quarter for Litigation Capital Management Limited (LON:LIT) shareholders, since the share price has fallen 13% in that time. While that might be a setback, it doesn't negate the nice returns received over the last twelve months. In that time we've seen the stock easily surpass the market return, with a gain of 40%.

Since the stock has added AU$15m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Litigation Capital Management

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.

Litigation Capital Management went from making a loss to reporting a profit, in the last year.

When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).

Litigation Capital Management's revenue actually dropped 3.6% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth

We know that Litigation Capital Management has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

A Different Perspective

Pleasingly, Litigation Capital Management's total shareholder return last year was 40%. That gain actually surpasses the 9% TSR it generated (per year) over three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 learn about the 3 warning signs we've spotted with Litigation Capital Management (including 1 which shouldn't be ignored) .

But note: Litigation Capital Management may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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