Did You Participate In Any Of Magic Software Enterprises' (NASDAQ:MGIC) Fantastic 174% Return ?
When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. Long term Magic Software Enterprises Ltd. (NASDAQ:MGIC) shareholders would be well aware of this, since the stock is up 142% in five years. It's also good to see the share price up 13% over the last quarter. But this could be related to the strong market, which is up 6.0% in the last three months.
View our latest analysis for Magic Software Enterprises
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Magic Software Enterprises achieved compound earnings per share (EPS) growth of 5.9% per year. This EPS growth is slower than the share price growth of 19% per year, over the same period. 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 image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Magic Software Enterprises has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Magic Software Enterprises will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Magic Software Enterprises' TSR for the last 5 years was 174%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Magic Software Enterprises shareholders have received a total shareholder return of 146% over the last year. And that does include the dividend. That's better than the annualised return of 22% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. To that end, you should be aware of the 1 warning sign we've spotted with Magic Software Enterprises .
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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