Shareholders of Mensch und Maschine Software (ETR:MUM) Must Be Delighted With Their 509% Total Return

It might be of some concern to shareholders to see the Mensch und Maschine Software SE (ETR:MUM) share price down 11% in the last month. But over five years returns have been remarkably great. Indeed, the share price is up a whopping 453% in that time. Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.

View our latest analysis for Mensch und Maschine Software

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Mensch und Maschine Software achieved compound earnings per share (EPS) growth of 33% per year. So the EPS growth rate is rather close to the annualized share price gain of 41% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. In fact, the share price seems to largely reflect the EPS growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Mensch und Maschine Software has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Mensch und Maschine Software's financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Mensch und Maschine Software, it has a TSR of 509% for the last 5 years. 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

Mensch und Maschine Software's TSR for the year was broadly in line with the market average, at 69%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 44%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. 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. To that end, you should be aware of the 1 warning sign we've spotted with Mensch und Maschine Software .

We will like Mensch und Maschine Software better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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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