The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But if you buy shares in a really great company, you can more than double your money. For example, the Monadelphous Group Limited (ASX:MND) share price has soared 156% in the last three years. That sort of return is as solid as granite. It’s also good to see the share price up 26% over the last quarter. But this could be related to the strong market, which is up 11% in the last three months.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Monadelphous Group failed to grow earnings per share, which fell 8.2% (annualized). This means it’s unlikely the market is judging the company based on earnings growth. Therefore, we think it’s worth considering other metrics as well.
It could be that the revenue growth of 7.2% per year is viewed as evidence that Monadelphous Group is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder’s faith in better days ahead will be rewarded.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Monadelphous Group in this interactive graph of future profit estimates.
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 incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Monadelphous Group, it has a TSR of 192% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It’s good to see that Monadelphous Group has rewarded shareholders with a total shareholder return of 17% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 7.8%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.