If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Mahindra & Mahindra Financial Services Limited (NSE:M&MFIN) share price is up 58% in the last 1 year, clearly besting the market return of around 2.7% (not including dividends). That’s a solid performance by our standards! On the other hand, longer term shareholders have had a tougher run, with the stock falling 25% in three years.
On the back of a solid 7-day performance, let’s check what role the company’s fundamentals have played in driving long term shareholder returns.
Check out our latest analysis for Mahindra & Mahindra Financial Services
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 the last year Mahindra & Mahindra Financial Services grew its earnings per share, moving from a loss to a profit.
When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
We doubt the modest 1.5% dividend yield is doing much to support the share price. We think that the revenue growth of 250% could have some investors interested. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Mahindra & Mahindra Financial Services has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Mahindra & Mahindra Financial Services stock, you should check out this free report showing analyst profit forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Mahindra & Mahindra Financial Services, it has a TSR of 61% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s good to see that Mahindra & Mahindra Financial Services has rewarded shareholders with a total shareholder return of 61% in the last twelve months. And that does include the dividend. There’s no doubt those recent returns are much better than the TSR loss of 3% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we’ve discovered 3 warning signs for Mahindra & Mahindra Financial Services (1 is potentially serious!) that you should be aware of before investing here.
Of course Mahindra & Mahindra Financial Services may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
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Find out whether Mahindra & Mahindra Financial Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.