The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But The Travelers Companies, Inc. (NYSE:TRV) has fallen short of that second goal, with a share price rise of 34% over five years, which is below the market return. Looking at the last year alone, the stock is up 9.8%.
Since the stock has added US$3.0b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
View our latest analysis for Travelers Companies
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
During five years of share price growth, Travelers Companies achieved compound earnings per share (EPS) growth of 8.0% per year. This EPS growth is higher than the 6% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 11.51 also suggests market apprehension.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Travelers Companies' earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Travelers Companies the TSR over the last 5 years was 51%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Travelers Companies has rewarded shareholders with a total shareholder return of 12% in the last twelve months. That's including the dividend. That's better than the annualised return of 9% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research Travelers Companies in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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