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Did You Participate In Any Of PennyMac Mortgage Investment Trust's (NYSE:PMT) Fantastic 193% Return ?

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·3 min read
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Unfortunately, investing is risky - companies can and do go bankrupt. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! For example, the PennyMac Mortgage Investment Trust (NYSE:PMT) share price has soared 165% return in just a single year. The longer term returns have not been as good, with the stock price only 11% higher than it was three years ago.

View our latest analysis for PennyMac Mortgage Investment Trust

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...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

PennyMac Mortgage Investment Trust went from making a loss to reporting a profit, in the last year.

The result looks like a strong improvement to us, so we're not surprised the market likes the growth. Generally speaking the profitability inflection point is a great time to research a company closely, lest you miss an opportunity to profit.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on PennyMac Mortgage Investment Trust's earnings, revenue and cash flow.

What About Dividends?

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. We note that for PennyMac Mortgage Investment Trust the TSR over the last year was 193%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that PennyMac Mortgage Investment Trust has rewarded shareholders with a total shareholder return of 193% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 20% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 - PennyMac Mortgage Investment Trust has 3 warning signs (and 1 which can't be ignored) we think you should know about.

PennyMac Mortgage Investment Trust is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing 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 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.