Yahoo Finance Those who invested in Radian Group (NYSE:RDN) three years ago are up 117%
One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Radian Group Inc. (NYSE:RDN) share price is up 97% in the last three years, clearly besting the market return of around 80% (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.
View our latest analysis for Radian Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
During three years of share price growth, Radian Group achieved compound earnings per share growth of 14% per year. This EPS growth is lower than the 25% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It's not unusual to see the market 're-rate' a stock, after a few years of growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Radian Group has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Radian Group, it has a TSR of 117% for the last 3 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
Although it hurts that Radian Group returned a loss of 3.8% in the last twelve months, the broader market was actually worse, returning a loss of 11%. Longer term investors wouldn't be so upset, since they would have made 4%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Radian Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Radian Group (at least 1 which is concerning) , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.
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