Mercator Medical's (WSE:MRC) earnings growth rate lags the 65% CAGR delivered to shareholders

By
Simply Wall St
Published
February 20, 2022
WSE:MRC
Source: Shutterstock

The last three months have been tough on Mercator Medical S.A. (WSE:MRC) shareholders, who have seen the share price decline a rather worrying 39%. But over three years the performance has been really wonderful. Over that time, we've been excited to watch the share price climb an impressive 345%. As long term investors the recent fall doesn't detract all that much from the longer term story. The share price action could signify that the business itself is dramatically improved, in that time.

Although Mercator Medical has shed zł107m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Mercator Medical

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, Mercator Medical achieved compound earnings per share growth of 336% per year. The average annual share price increase of 65% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 0.86 also reflects the negative sentiment around the stock.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
WSE:MRC Earnings Per Share Growth February 20th 2022

It might be well worthwhile taking a look at our free report on Mercator Medical's earnings, revenue and cash flow.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Mercator Medical's TSR for the last 3 years was 349%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 7.6% in the last year, Mercator Medical shareholders lost 81% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 25% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Case in point: We've spotted 2 warning signs for Mercator Medical you should be aware of, and 1 of them doesn't sit too well with us.

But note: Mercator Medical may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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