U.S. markets close in 1 hour 31 minutes
  • S&P 500

    3,755.62
    -27.66 (-0.73%)
     
  • Dow 30

    29,989.10
    -284.77 (-0.94%)
     
  • Nasdaq

    11,108.21
    -40.42 (-0.36%)
     
  • Russell 2000

    1,756.73
    -5.96 (-0.34%)
     
  • Crude Oil

    88.59
    +0.83 (+0.95%)
     
  • Gold

    1,720.70
    -0.10 (-0.01%)
     
  • Silver

    20.66
    +0.12 (+0.56%)
     
  • EUR/USD

    0.9810
    -0.0075 (-0.76%)
     
  • 10-Yr Bond

    3.8030
    +0.0440 (+1.17%)
     
  • GBP/USD

    1.1172
    -0.0149 (-1.32%)
     
  • USD/JPY

    145.0130
    +0.4030 (+0.28%)
     
  • BTC-USD

    20,102.42
    -82.55 (-0.41%)
     
  • CMC Crypto 200

    457.24
    -5.88 (-1.27%)
     
  • FTSE 100

    6,997.27
    -55.35 (-0.78%)
     
  • Nikkei 225

    27,311.30
    +190.80 (+0.70%)
     

Investors in McCormick (NYSE:MKC) have made a solid return of 107% over the past five years

·3 min read

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the McCormick & Company, Incorporated (NYSE:MKC) share price is up 91% in the last 5 years, clearly besting the market return of around 70% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.8% in the last year , including dividends .

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for McCormick

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During five years of share price growth, McCormick achieved compound earnings per share (EPS) growth of 6.0% per year. This EPS growth is lower than the 14% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of McCormick, it has a TSR of 107% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that McCormick shareholders have received a total shareholder return of 6.8% over one year. And that does include the dividend. However, the TSR over five years, coming in at 16% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. 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. For example, we've discovered 2 warning signs for McCormick (1 is significant!) that you should be aware of before investing here.

We will like McCormick better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.

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

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here