Generally, the goal of active security selection is to find companies that offer returns above the market average. Buying underrated businesses is a path to excess returns. For example, long term The Berkeley Holdings plc group (LON: BKG) shareholders have enjoyed a 53% share price increase over the past five years, well above the market yield of around 11% (excluding dividends). In contrast, the most recent gains have not been as impressive, with shareholders earning just 1.1% including dividends.

Now, it’s worth looking at the fundamentals of the business as well, as this will help us determine whether the long-term return to the shareholder matches the performance of the underlying business.

Check out our latest analysis for Berkeley Group Holdings

In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. By comparing earnings per share (EPS) and changes in stock prices over time, we can get a sense of how investors’ attitudes towards a company have changed over time.

Over the five years of stock price growth, Berkeley Group Holdings has achieved compound earnings per share (EPS) growth of 2.0% per year. This EPS growth is lower than the 9% average annual increase in the share price. This suggests that market participants hold society in the highest regard these days. This isn’t necessarily surprising given the track record of five-year earnings growth.

You can see below how the EPS has evolved over time (see the exact values ​​by clicking on the image).

earnings per share growth

We consider it positive that insiders have made significant purchases in the past year. Even so, future profits will be much more important to whether current shareholders make money. It might be worth taking a look at our free Berkeley Group Holdings earnings, revenue and cash flow report.

What about the Total Shareholder Return (TSR)?

Investors should note that there is a difference between the Total Shareholder Return (TSR) of Berkeley Group Holdings and the change in its share price, which we have covered above. 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 spin-offs. The dividends have been truly beneficial to the shareholders of Berkeley Group Holdings, and this cash payout has helped explain why its 88% TSR, over the past 5 years, is better than the share price return.

A different perspective

Berkeley Group Holdings shareholders are up 1.1% for the year. But this yield is lower than the market. On the positive side, longer-term returns (around 13% per year, over half a decade) look better. It is entirely possible that the company will continue to perform well, even if the stock price gains slow. It is always interesting to follow the evolution of stock prices over the long term. But to better understand Berkeley Group Holdings, there are many other factors that we need to consider. For example, we discovered 1 warning sign for Berkeley Group Holdings which you should know before investing here.

There are many other companies in which insiders buy shares. You probably do not want to miss it free list of growing companies that insiders buy.

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 any stock 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 documents. Simply Wall St has no position in any of the stocks mentioned.