2 weeks Ago By Simply Wall St.
By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, the ( ) share price is up 81% in the last three years, clearly besting the market return of around 6.
9% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 68%, including dividends. So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
In his essay Warren Buffett described how share prices do not always rationally reflect the value of a business. 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. During three years of share price growth, MBM Resources Berhad achieved compound earnings per share growth of 19% per year.
We don't think it is entirely coincidental that the EPS growth is reasonably close to the 22% 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 MBM Resources Berhad has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this . It is important to consider the total shareholder return, as well as the share price return, for any given stock.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of MBM Resources Berhad, it has a TSR of 153% for the last 3 years.
That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the shareholder return. It's nice to see that MBM Resources Berhad shareholders have received a total shareholder return of 68% over the last year.
Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 17% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper.
I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - MBM Resources Berhad has we think you should know about.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this.
