Liontrust Asset Management (LON: LIO) stock outperforms its underlying earnings growth over the past five years


For many, the main goal of investing in the stock market is to earn spectacular returns. Granted, the best companies are hard to find, but they can generate massive returns over long periods of time. For example, the Liontrust Asset Management PLC The share price (LON: LIO) has risen 604% over the past five years, a nice return for long-term holders. It just shows the value creation that some companies can achieve. On top of that, the share price rose 44% in about a quarter. We are really delighted to see such a performance of the stock price for investors.

The past week has turned out to be lucrative for investors at Liontrust Asset Management, so let’s see if fundamentals have boosted the company’s performance over five years.

Check out our latest review for Liontrust Asset Management

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are overly responsive dynamic systems and investors are not always rational. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).

During the five years of stock price growth, Liontrust Asset Management achieved compound earnings per share (EPS) growth of 23% per year. This EPS growth is lower than the average annual increase of 48% in the share price. This suggests that market participants hold society in the highest regard these days. And that’s hardly shocking given the growth history. This optimism is visible in its rather high P / E ratio of 48.06.

The company’s earnings per share (over time) is shown in the image below (click to see exact numbers).

LSE: LIO Growth in earnings per share August 22, 2021

We know that Liontrust Asset Management has improved its results over the past three years, but what does the future hold? Take a closer look at the financial health of Liontrust Asset Management with this free report on its balance sheet.

What about dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spinoff. Arguably, the TSR gives a more complete picture of the return generated by a stock. As it turns out, Liontrust Asset Management’s TSR over the past 5 years was 729%, which exceeds the share price return mentioned above. The dividends paid by the company thus boosted the total shareholder return.

A different perspective

It is nice to see that Liontrust Asset Management shareholders have received a total shareholder return of 82% over the past year. Of course, this includes the dividend. As the 1-year TSR is better than the 5-year TSR (the latter standing at 53% per year), it seems that the performance of the stock has improved in recent times. Someone with an optimistic outlook might view the recent improvement in TSR as indicating that the business itself is improving over time. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we discovered 3 warning signs for Liontrust Asset Management which you should know before investing here.

If you would rather consult with another company – one with potentially superior finances – then don’t miss this free list of companies that have proven they can increase their profits.

Please note that the market returns quoted in this article reflect the market weighted average returns of stocks currently traded on UK stock exchanges.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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