Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
You can receive the average market return by buying a low-cost index fund. But you can make better returns by buying undervalued shares. For example, the Medical Properties Trust, Inc. (NYSE:MPW) share price is up 60% in the last three years, slightly above the market return. It’s nice to see the stock price has more recent momentum, too, with a rise of 47% in the last year.
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 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 three years of share price growth, Medical Properties Trust achieved compound earnings per share growth of 63% per year. This EPS growth is higher than the 17% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We’d venture the lowish P/E ratio of 6.67 also reflects the negative sentiment around the stock.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Medical Properties Trust has improved its bottom line over the last three years, but what does the future have in store? You can see how its financial situation has strengthened (or weakened) over time in this free interactive graphic.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Medical Properties Trust the TSR over the last 3 years was 97%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Medical Properties Trust shareholders have received a total shareholder return of 58% over the last year. And that does include the dividend. That’s better than the annualised return of 15% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research Medical Properties Trust in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Medical Properties Trust 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 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.