There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you're going to buy some stocks that fall short of the market. For example, the Mader Group Limited (ASX:MAD), share price is up over the last year, but its gain of 19% trails the market return. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
Mader Group was able to grow EPS by 8.7% in the last twelve months. The share price gain of 19% certainly outpaced the EPS growth. This indicates that the market is now more optimistic about the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Mader Group'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. Whereas the share price return 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Mader Group, it has a TSR of 23% for the last year. 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
Mader Group shareholders have gained 23% for the year (even including dividends). While it's always nice to make a profit on the stock market, we do note that the TSR was no better than the broader market return of about 40%. That's a lot better than the more recent three month gain of 1.7%, implying that share price has plateaued recently, for now. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). 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. Even so, be aware that Mader Group is showing 2 warning signs in our investment analysis , you should know about...
Mader Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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