Main Street Capital (NYSE:MAIN) shareholders have earned a 32% return over the last year

It's always best to build a diverse portfolio of shares, since any stock business could lag the broader market. But the goal is to pick stocks that do better than average. Main Street Capital Corporation (NYSE:MAIN) has done well over the last year, with the stock price up 21% beating the market return of 19% (not including dividends). Looking back further, the share price is 21% higher than it was three years ago.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

See our latest analysis for Main Street Capital

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. 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).

Main Street Capital was able to grow EPS by 63% in the last twelve months. This EPS growth is significantly higher than the 21% increase in the share price. So it seems like the market has cooled on Main Street Capital, despite the growth. Interesting. The caution is also evident in the lowish P/E ratio of 9.43.

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 Main Street Capital has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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 Main Street Capital the TSR over the last 1 year was 32%, 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

We're pleased to report that Main Street Capital shareholders have received a total shareholder return of 32% over one year. That's including the dividend. That gain is better than the annual TSR over five years, which is 12%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Main Street Capital better, we need to consider many other factors. For example, we've discovered 5 warning signs for Main Street Capital (2 are significant!) that you should be aware of before investing here.

But note: Main Street Capital 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 American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com