Investors more bullish on Mivne Real Estate (K.D) (TLV:MVNE) this week as stock rises 5.7%, despite earnings trending downwards over past five years

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Mivne Real Estate (K.D) Ltd (TLV:MVNE) share price is up 16% in the last five years, that's less than the market return. Unfortunately the share price is down 3.8% in the last year.

Since the stock has added ₪364m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Mivne Real Estate (K.D)

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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, Mivne Real Estate (K.D) actually saw its EPS drop 15% per year.

Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. The falling EPS doesn't correlate with the climbing share price, so it's worth taking a look at other metrics.

It is not great to see that revenue has dropped by 1.1% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Mivne Real Estate (K.D)'s TSR for the last 5 years was 31%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Mivne Real Estate (K.D) shareholders are down 1.1% over twelve months (even including dividends), which isn't far from the market return of -1.0%. The silver lining is that longer term investors would have made a total return of 5% per year over half a decade. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. 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. For instance, we've identified 4 warning signs for Mivne Real Estate (K.D) (1 is concerning) that you should be aware of.

Of course Mivne Real Estate (K.D) 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 Israeli exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com