Shareholders Of InterContinental Hotels Group (LON:IHG) Must Be Happy With Their 121% Total Return

Simply Wall St
·3 min read

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the InterContinental Hotels Group PLC (LON:IHG) share price is up 57% in the last 5 years, clearly besting the market return of around 14% (ignoring dividends).

Check out our latest analysis for InterContinental Hotels Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, InterContinental Hotels Group actually saw its EPS drop 29% per year. This was, in part, due to extraordinary items impacting earning in the last twelve months.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

In contrast revenue growth of 13% per year is probably viewed as evidence that InterContinental Hotels Group is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for InterContinental Hotels Group in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between InterContinental Hotels Group's total shareholder return (TSR) and its share price change, which we've covered above. 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. Dividends have been really beneficial for InterContinental Hotels Group shareholders, and that cash payout contributed to why its TSR of 121%, over the last 5 years, is better than the share price return.

A Different Perspective

While it's certainly disappointing to see that InterContinental Hotels Group shares lost 1.2% throughout the year, that wasn't as bad as the market loss of 4.5%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 17% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand InterContinental Hotels Group better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for InterContinental Hotels Group you should know about.

InterContinental Hotels Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

This article by Simply Wall St is general in nature. 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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