If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. But Masco Corporation (NYSE:MAS) has fallen short of that second goal, with a share price rise of 92% over five years, which is below the market return. Looking at the last year alone, the stock is up 19%.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During five years of share price growth, Masco achieved compound earnings per share (EPS) growth of 20% per year. This EPS growth is higher than the 14% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Masco has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Masco the TSR over the last 5 years was 103%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Masco shareholders are up 21% for the year (even including dividends). But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 15% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand Masco better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Masco .
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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