Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Medical Properties Trust, Inc. (NYSE:MPW) share price is up 51% in the last year, clearly besting than the market return of around 7.2% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Looking back further, the stock price is 42% higher than it was three years ago.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 Medical Properties Trust grew its earnings per share (EPS) by 236%. It's fair to say that the share price gain of 51% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Medical Properties Trust as it was before. This could be an opportunity. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.79.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Medical Properties Trust has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Medical Properties Trust stock, you should check out this FREE detailed report on its balance sheet.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Medical Properties Trust's TSR for the last year was 61%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Medical Properties Trust shareholders have received a total shareholder return of 61% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.