The past year for investors at IGM Financial (TSE:IGM) has not been profitable

The easiest way to take advantage of a bull market is to buy an index fund. While individual stocks can be big winners, many others fail to generate satisfactory returns. Investors in IGM Financial Inc. (EAST: IGM) tasted that bitter downside last year, with the stock price dropping 25%. This is significantly lower than the market decline of around 6.6%. However, longer-term returns haven’t been so bad, with the stock falling 2.5% over the past three years.

So let’s take a look and see if the company’s long-term performance has been in line with the progress of the underlying business.

Our analysis indicates that IGM is potentially undervalued!

It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying performance of companies. By comparing earnings per share (EPS) and share price changes over time, we can get an idea of ​​how investors’ attitudes toward a company change over time.

Even though IGM Financial’s share price is down over the year, its EPS has actually improved. It could be that the share price was previously overhyped.

It is surprising to see the share price drop so much, despite the improvement in EPS. But we might find different measures that better explain stock price movements.

IGM Financial’s dividend looks healthy to us, so we doubt yield is a concern for the market. From what we can see, earnings are pretty flat, which doesn’t really explain the stock price drop. Of course, it could just be that it simply failed to live up to market consensus expectations.

You can see how earnings and income have changed over time in the image below (click on the graph to see exact values).

TSX: IGM earnings and revenue growth October 22, 2022

We consider it positive that insiders have made significant purchases over the past year. That said, most people consider profit and revenue growth trends to be a more meaningful guide to the business. We therefore recommend that you consult this free report showing consensus forecast

What about dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price performance. The TSR incorporates the value of any spin-offs or discounted capital increases, as well as any dividends, assuming the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture of stocks that pay a dividend. We note that for IGM Financial, the TSR over the past year was -21%, which is better than the stock price return mentioned above. And there’s no price guessing that dividend payouts largely explain the divergence!

A different perspective

While the broader market lost around 6.6% in the twelve months, IGM Financial shareholders fared even worse, losing 21% (even including dividends). That said, it is inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the positive side, long-term shareholders have made money, with a gain of 1.7% per year over half a decade. If fundamentals continue to point to sustainable long-term growth, the current sell-off could be an opportunity to consider. Investors who like to make money usually check insider buying, such as the price paid and the total amount bought. You can learn more about IGM Financial’s insider buying by clicking this link.

IGM Financial isn’t the only stock insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider buying, might be just the ticket.

Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on CA exchanges.

Valuation is complex, but we help make it simple.

Find out if IGM Financial is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

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

Robert D. Coleman