Master Drilling Group (JSE:MDI) jumps 13% this week, though earnings growth is still tracking behind five-year shareholder returns

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of Master Drilling Group Limited (JSE:MDI) stock is up an impressive 143% over the last five years. Better yet, the share price has risen 13% in the last week.

Since the stock has added R291m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Master Drilling Group achieved compound earnings per share (EPS) growth of 22% per year. So the EPS growth rate is rather close to the annualized share price gain of 19% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

This free interactive report on Master Drilling Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Master Drilling Group, it has a TSR of 181% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Master Drilling Group's TSR for the year was broadly in line with the market average, at 31%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 23% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Master Drilling Group better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Master Drilling Group you should be aware of.

But note: Master Drilling Group 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 South African 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.