Main Street Capital (NYSE:MAIN) shareholders have earned a 40% return over the last year

We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. Over the last year the Main Street Capital Corporation (NYSE:MAIN) share price is up 29%, but that's less than the broader market return. However, the longer term returns haven't been so impressive, with the stock up just 13% in the last three years.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Main Street Capital

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

During the last year Main Street Capital grew its earnings per share (EPS) by 12%. This EPS growth is significantly lower than the 29% increase in the share price. So it's fair to assume the market has a higher opinion of the business than it a year ago.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Main Street Capital 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. 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. As it happens, Main Street Capital's TSR for the last 1 year was 40%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Main Street Capital provided a TSR of 40% over the year (including dividends). That's fairly close to the broader market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 12%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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. Even so, be aware that Main Street Capital is showing 5 warning signs in our investment analysis , and 2 of those make us uncomfortable...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.