Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. So we wouldn't blame long term MTS Systems Corporation (NASDAQ:MTSC) shareholders for doubting their decision to hold, with the stock down 34% over a half decade. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years over which the share price declined, MTS Systems's earnings per share (EPS) dropped by 4.1% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 8.1% per year, over the period. So it seems the market was too confident about the business, in the past.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of MTS Systems's 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, MTS Systems's TSR for the last 5 years was -27%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
MTS Systems shareholders gained a total return of 19% during the year. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 6.0% per year, over five years. So this might be a sign the business has turned its fortunes around. 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.
MTS Systems is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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