Investing in GAMCO Investors (NYSE:GBL) three years ago would have delivered you a 64% gain

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GAMCO Investors, Inc. (NYSE:GBL) shareholders might be concerned after seeing the share price drop 11% in the last month. But at least the stock is up over the last three years. However, it’s unlikely many shareholders are elated with the share price gain of 42% over that time, given the rising market.

Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.

Check out our latest analysis for GAMCO Investors

To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over the last three years, GAMCO Investors failed to grow earnings per share, which fell 5.5% (annualized).

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.

Languishing at just 0.7%, we doubt the dividend is doing much to prop up the share price. You can only imagine how long term shareholders feel about the declining revenue trend (slipping at 9.3% per year). What’s clear is that historic earnings and revenue aren’t matching up with the share price action, very well. So you might have to dig deeper to get a grasp of the situation

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, GAMCO Investors’ TSR for the last 3 years was 64%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We’re pleased to report that GAMCO Investors shareholders have received a total shareholder return of 46% over one year. And that does include the dividend. There’s no doubt those recent returns are much better than the TSR loss of 1.6% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 1 warning sign with GAMCO Investors , and understanding them should be part of your investment process.

But note: GAMCO Investors may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 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.