When you buy shares in a company, there is always a risk that the price drops to zero. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Myer Holdings Limited (ASX:MYR) share price has soared 150% in the last 1 year. Most would be very happy with that, especially in just one year! Also pleasing for shareholders was the 14% gain in the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. However, the stock hasn’t done so well in the longer term, with the stock only up 5.0% in three years.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 the last year Myer Holdings grew its earnings per share, moving from a loss to a profit.
We think the growth looks very prospective, so we’re not surprised the market liked it too. Inflection points like this can be a great time to take a closer look at a company.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
We’re pleased to report that Myer Holdings shareholders have received a total shareholder return of 150% over one year. Notably the five-year annualised TSR loss of 9% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we’ve discovered 2 warning signs for Myer Holdings (1 is potentially serious!) that you should be aware of before investing here.
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 AU exchanges.
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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