Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. To wit, the Mercor share price has climbed 18% in five years, easily topping the market return of -7.7% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 9.6%.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Mercor achieved compound earnings per share (EPS) growth of 11% per year. The EPS growth is more impressive than the yearly share price gain of 3.4% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.03.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Fundamentally, investors are buying a company’s future earnings, but the stability of the business can influence the price they’re willing to pay. For example, we’ve discovered 3 warning signs for Mercor which any shareholder or potential investor should be aware of.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Mercor’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Its history of dividend payouts mean that Mercor’s TSR of 38% over the last 5 years is better than the share price return.
A Different Perspective
We’re pleased to report that Mercor shareholders have received a total shareholder return of 9.6% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6.7% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Is Mercor cheap compared to other companies? These 3 valuation measures might help you decide.
Of course Mercor may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on PL exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.