LPL Financial Holdings' (NASDAQ:LPLA) five-year earnings growth trails the solid shareholder returns

Simply Wall St · 10/15 11:25

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of LPL Financial Holdings Inc. (NASDAQ:LPLA) stock is up an impressive 220% over the last five years. And in the last month, the share price has gained 21%.

The past week has proven to be lucrative for LPL Financial Holdings investors, so let's see if fundamentals drove the company's five-year performance.

See our latest analysis for LPL Financial Holdings

There is no denying that markets are sometimes efficient, but prices do not always reflect 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, LPL Financial Holdings achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is lower than the 26% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NasdaqGS:LPLA Earnings Per Share Growth October 15th 2024

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of LPL Financial Holdings' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for LPL Financial Holdings the TSR over the last 5 years was 232%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

LPL Financial Holdings shareholders are up 8.1% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 27% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for LPL Financial Holdings you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.