Investors in Merck (NYSE:MRK) have made a respectable return of 70% over the past five years
If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Merck & Co., Inc. (NYSE:MRK) share price is up 39% in the last five years, that's less than the market return. Zooming in, the stock is up a respectable 13% in the last year.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Merck
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. 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, Merck managed to grow its earnings per share at 28% a year. This EPS growth is higher than the 7% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Merck has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
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 spin-offs or 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. As it happens, Merck's TSR for the last 5 years was 70%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Merck has rewarded shareholders with a total shareholder return of 23% in the last twelve months. And that does include the dividend. That's better than the annualised return of 11% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Merck is showing 1 warning sign in our investment analysis , you should know about...
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.
