McMillan Shakespeare (ASX:MMS) Has Compensated Shareholders With A Respectable 60% Return On Their Investment

If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the McMillan Shakespeare Limited (ASX:MMS) share price is up 27% in the last five years, that's less than the market return. Over the last twelve months the stock price has risen a very respectable 9.9%.

View our latest analysis for McMillan Shakespeare

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 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).

During five years of share price growth, McMillan Shakespeare actually saw its EPS drop 55% per year. This was, in part, due to extraordinary items impacting earning in the last twelve months.

The strong decline in earnings per share suggests the market isn't using EPS to judge the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.

On the other hand, McMillan Shakespeare's revenue is growing nicely, at a compound rate of 4.0% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for McMillan Shakespeare in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

We've already covered McMillan Shakespeare's share price action, but we should also mention its total shareholder return (TSR). 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. Its history of dividend payouts mean that McMillan Shakespeare's TSR of 60% over the last 5 years is better than the share price return.

A Different Perspective

It's good to see that McMillan Shakespeare has rewarded shareholders with a total shareholder return of 14% in the last twelve months. That's better than the annualised return of 10% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand McMillan Shakespeare better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for McMillan Shakespeare you should be aware of.

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.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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