After buying stock in a company, the worst outcome (assuming no leverage) is to lose all the money you put into it. But on the bright side, if you buy stocks in high-quality companies at the right price, you can earn well over 100%. One great example is MoneyMax Financial Services Ltd. (Cat:5WJ), whose stock price has increased 175% in five years. On top of that, the stock price is up 35% in about a quarter.
So let’s assess the underlying fundamentals over the past five years to see if they have kept pace with shareholder returns.
Check out our latest analysis for MoneyMax Financial Services.
In his essay “Graham and Doddsville’s Super Investors,” Warren Buffett explained that stock prices do not always rationally reflect the value of a company. 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.
MoneyMax Financial Services achieved compounded earnings per share (EPS) growth of 47% per year during the five-year share price period. The EPS growth is more impressive than the 22% annual share price increase over the same period. As such, the market doesn’t seem all that enthusiastic about this stock lately. The rather low P/E ratio of 4.94 also suggests some concerns in the market.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Growth rate of earnings per share
Before buying or selling a stock, we always recommend taking a closer look at its historical growth trends, available here.
It’s important to consider not only the share price return, but also the total shareholder return for a particular stock. Whereas the price/earnings ratio only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often much higher than the share price return. We note that MoneyMax Financial Services’ TSR over the last five years was 240%, which is better than the share price return mentioned above. This is primarily due to dividend payments.
It’s good to see that MoneyMax Financial Services shareholders received a total shareholder return of 56% over the last year. And this includes dividends. This is better than the 28% annualized return over the past five years, suggesting that the company has performed well of late. Optimists might think that the recent improvement in TSR indicates that the business itself is improving over time. 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. For example, we’ve discovered 2 warning signs for MoneyMax Financial Services (1 shouldn’t be ignored!) that you should be aware of before investing here.
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However, note that MoneyMax Financial Services 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 Singapore exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
