Yahoo Finance If You Had Bought Meritage Homes (NYSE:MTH) Stock Three Years Ago, You Could Pocket A 81% Gain Today
One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Meritage Homes Corporation (NYSE:MTH) share price is up 81% in the last three years, clearly besting the market return of around 23% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 55%.
View our latest analysis for Meritage Homes
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Meritage Homes was able to grow its EPS at 21% per year over three years, sending the share price higher. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 22% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Quite to the contrary, the share price has arguably reflected the EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Meritage Homes has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
A Different Perspective
It's good to see that Meritage Homes has rewarded shareholders with a total shareholder return of 55% in the last twelve months. That gain is better than the annual TSR over five years, which is 9.1%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Meritage Homes you should know about.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
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. Thank you for reading.
