Erie Indemnity's (NASDAQ:ERIE) three-year earnings growth trails the 35% YoY shareholder returns

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14-04-2025

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. To wit, the Erie Indemnity Company (NASDAQ:ERIE) share price has flown 135% in the last three years. Most would be happy with that. And in the last week the share price has popped 10%. But this could be related to the buoyant market which is up about 5.8% in a week.
Since the stock has added US$2.0b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
We check all companies for important risks. See what we found for Erie Indemnity in our free report.
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.
Erie Indemnity was able to grow its EPS at 26% per year over three years, sending the share price higher. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 33% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Quite to the contrary, the share price has arguably reflected the EPS growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Erie Indemnity has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Erie Indemnity, it has a TSR of 147% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
We're pleased to report that Erie Indemnity shareholders have received a total shareholder return of 12% over one year. And that does include the dividend. However, that falls short of the 21% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. If you would like to research Erie Indemnity in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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.
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