One way to deal with stock volatility is to ensure you have a properly diverse portfolio. But if you're going to beat the market overall, you need to have individual stocks that outperform. Methode Electronics, Inc. (NYSE:MEI) has done well over the last year, with the stock price up 65% beating the market return of 63% (not including dividends). However, the stock hasn't done so well in the longer term, with the stock only up 18% in three years.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Methode Electronics was able to grow EPS by 3.7% in the last twelve months. This EPS growth is significantly lower than the 65% increase in the share price. This indicates that the market is now more optimistic about the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Methode Electronics' earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Methode Electronics' TSR for the last year was 67%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Methode Electronics provided a TSR of 67% over the year (including dividends). That's fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 11% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. It's always interesting to track share price performance over the longer term. But to understand Methode Electronics better, we need to consider many other factors. For example, we've discovered 1 warning sign for Methode Electronics that you should be aware of before investing here.
But note: Methode Electronics 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.
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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