The Meridian Energy (NZSE:MEL) Share Price Is Up 55% And Shareholders Are Holding On

By
Simply Wall St
Published
March 15, 2020
NZSE:MEL

Meridian Energy Limited (NZSE:MEL) shareholders have seen the share price descend 22% over the month. But don't let that distract from the very nice return generated over three years. In fact, the company's share price bested the return of its market index in that time, posting a gain of 55%.

Check out our latest analysis for Meridian Energy

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Meridian Energy was able to grow its EPS at 22% per year over three years, sending the share price higher. The average annual share price increase of 16% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NZSE:MEL Past and Future Earnings, March 15th 2020
NZSE:MEL Past and Future Earnings, March 15th 2020

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Meridian Energy's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Meridian Energy, it has a TSR of 85% for the last 3 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

We're pleased to report that Meridian Energy rewarded shareholders with a total shareholder return of 19% over the last year. That includes the value of the dividend. The TSR has been even better over three years, coming in at 23% per year. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Meridian Energy (of which 2 are a bit concerning!) you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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