The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For instance the McGrath RentCorp (NASDAQ:MGRC) share price is 137% higher than it was three years ago. Most would be happy with that. In more good news, the share price has risen 11% in thirty days. This could be related to the recent financial results that were recently released – you could check the most recent data by reading our company report.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 three years of share price growth, McGrath RentCorp achieved compound earnings per share growth of 27% per year. We note that the 33% yearly (average) share price gain isn’t too far from the EPS growth rate. Coincidence? Probably not. That suggests that the market sentiment around the company hasn’t changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on McGrath RentCorp’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, McGrath RentCorp’s TSR for the last 3 years was 159%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that McGrath RentCorp shareholders have received a total shareholder return of 21% over the last year. And that does include the dividend. That’s better than the annualised return of 15% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on McGrath RentCorp it might be wise to click here to see if insiders have been buying or selling shares.
But note: McGrath RentCorp may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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 email@example.com. 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.