Medica Group (LON:MGP) shareholders have earned a 5.0% CAGR over the last three years
By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Medica Group Plc (LON:MGP), which is up 11%, over three years, soundly beating the market decline of 3.7% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 5.4% in the last year , including dividends .
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
See our latest analysis for Medica Group
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 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 the last three years, Medica Group failed to grow earnings per share, which fell 5.2% (annualized).
Earnings per share have melted like a stack of ice cubes, in stark contrast to the share price. So we'll need to take a look at some different metrics to try to understand why the share price remains solid.
The modest 1.6% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 17% per year is viewed as evidence that Medica Group is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Medica Group has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Medica Group
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 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. In the case of Medica Group, it has a TSR of 16% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Medica Group has rewarded shareholders with a total shareholder return of 5.4% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 3% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. If you would like to research Medica Group in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.
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