When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Marel hf. (ICE:MAREL) shareholders would be well aware of this, since the stock is up 265% in five years. In more good news, the share price has risen 1.3% in thirty days. But this could be related to good market conditions -- stocks in its market are up 6.5% in the last month.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over half a decade, Marel hf managed to grow its earnings per share at 10% a year. This EPS growth is lower than the 30% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 45.25.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Marel hf has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Marel hf will grow revenue in the future.
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. As it happens, Marel hf's TSR for the last 5 years was 290%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Marel hf shareholders are up 29% for the year (even including dividends). But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 31% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Is Marel hf cheap compared to other companies? These 3 valuation measures might help you decide.
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 IS exchanges.
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