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Long term investing can be life changing when you buy and hold the truly great businesses. While not every stock performs well, when investors win, they can win big. To wit, the MGP Ingredients, Inc. (NASDAQ:MGPI) share price has soared 1256% over five years. This just goes to show the value creation that some businesses can achieve. In more good news, the share price has risen 5.7% in thirty days.
Anyone who held for that rewarding ride would probably be keen to talk about it.
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 five years of share price growth, MGP Ingredients achieved compound earnings per share (EPS) growth of 90% per year. This EPS growth is higher than the 68% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of MGP Ingredients’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 incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for MGP Ingredients the TSR over the last 5 years was 1308%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in MGP Ingredients had a tough year, with a total loss of 7.2% (including dividends), against a market gain of about 3.1%. 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 70% 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. The data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
MGP Ingredients is not the only stock that insiders are buying. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.