Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term MACA Limited (ASX:MLD) shareholders have had that experience, with the share price dropping 38% in three years, versus a market return of about 36%. There was little comfort for shareholders in the last week as the price declined a further 2.4%.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the three years that the share price fell, MACA's earnings per share (EPS) dropped by 9.6% each year. The share price decline of 15% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on MACA's earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of MACA, it has a TSR of -28% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
MACA provided a TSR of 8.2% over the last twelve months. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 8.5% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand MACA better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with MACA (at least 1 which is significant) , and understanding them should be part of your investment process.
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.
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.
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