If You Had Bought MedCap (STO:MCAP) Stock Five Years Ago, You Could Pocket A 663% Gain Today

Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. Don't believe it? Then look at the MedCap AB (publ) (STO:MCAP) share price. It's 663% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. It's also good to see the share price up 11% over the last quarter. But this could be related to the strong market, which is up 7.5% in the last three months.

It really delights us to see such great share price performance for investors.

Check out our latest analysis for MedCap

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.

Over half a decade, MedCap managed to grow its earnings per share at 25% a year. This EPS growth is lower than the 50% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. 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 56.57.

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

We know that MedCap has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

It's good to see that MedCap has rewarded shareholders with a total shareholder return of 60% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 50% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 1 warning sign for MedCap that you should be aware of.

Of course MedCap 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 SE 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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