The McGrath (ASX:MEA) Share Price Has Gained 97% And Shareholders Are Hoping For More
The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. For example, the McGrath Limited (ASX:MEA) share price is up 97% in the last year, clearly besting the market return of around 1.5% (not including dividends). So that should have shareholders smiling. And shareholders have also done well over the long term, with an increase of 44% in the last three years.
Check out our latest analysis for McGrath
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 last year McGrath grew its earnings per share, moving from a loss to a profit.
When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
For starters, we suspect the share price has been buoyed by the dividend, which was increased during the year. It could be that the company is reaching maturity and dividend investors are buying for the yield, pushing the price up in the process. Furthermore, the revenue growth of 14% probably also encouraged buyers.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
It's good to see that McGrath has rewarded shareholders with a total shareholder return of 97% in the last twelve months. That's including the dividend. That certainly beats the loss of about 8% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Case in point: We've spotted 4 warning signs for McGrath you should be aware of.
We will like McGrath 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 AU 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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