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If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Murphy USA Inc. (NYSE:MUSA) share price is 94% higher than it was five years ago, which is more than the market average. It's also good to see that the stock is up 5.5% in a year.
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).
Over half a decade, Murphy USA managed to grow its earnings per share at 22% a year. This EPS growth is higher than the 14% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.04.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Murphy USA has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Murphy USA's financial health with this free report on its balance sheet.
A Different Perspective
Murphy USA shareholders are up 5.7% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 14% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Murphy USA better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Murphy USA (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.
But note: Murphy USA 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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