Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. To wit, the Methode Electronics, Inc. (NYSE:MEI) share price is 20% higher than it was a year ago, much better than the market return of around 8.4% (not including dividends) in the same period. That’s a solid performance by our standards! However, the stock hasn’t done so well in the longer term, with the stock only up 8.7% in three years.
See our latest analysis for Methode Electronics
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Methode Electronics was able to grow EPS by 59% in the last twelve months. This EPS growth is significantly higher than the 20% increase in the share price. Therefore, it seems the market isn’t as excited about Methode Electronics as it was before. This could be an opportunity.
You can see how EPS has changed over time in the image below.
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. This free interactive report on Methode Electronics’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Methode Electronics’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Methode Electronics shareholders, and that cash payout contributed to why its TSR of 22%, over the last year, is better than the share price return.
A Different Perspective
We’re pleased to report that Methode Electronics shareholders have received a total shareholder return of 22% over one year. And that does include the dividend. There’s no doubt those recent returns are much better than the TSR loss of 0.8% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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. Thank you for reading.