[ad_1]
When you buy shares in a company, it’s worth keeping in mind the possibility that it could fail, and you could lose your money. 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 example, the PennyMac Financial Services, Inc. (NYSE:PFSI) share price has soared 153% in the last half decade. Most would be very happy with that. On top of that, the share price is up 25% in about a quarter.
Since the stock has added US$121m to its market cap in the past week alone, let’s see if underlying performance has been driving long-term returns.
See our latest analysis for PennyMac Financial Services
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over half a decade, PennyMac Financial Services managed to grow its earnings per share at 35% a year. The EPS growth is more impressive than the yearly share price gain of 20% over the same period. So it seems the market isn’t so enthusiastic about the stock these days. The reasonably low P/E ratio of 4.82 also suggests market apprehension.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that PennyMac Financial Services has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
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 or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of PennyMac Financial Services, it has a TSR of 170% 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
While it’s certainly disappointing to see that PennyMac Financial Services shares lost 14% throughout the year, that wasn’t as bad as the market loss of 20%. Longer term investors wouldn’t be so upset, since they would have made 22%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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 instance, we’ve identified 2 warning signs for PennyMac Financial Services (1 makes us a bit uncomfortable) that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
What are the risks and opportunities for PennyMac Financial Services?
PennyMac Financial Services, Inc., through its subsidiaries, engages in the mortgage banking and investment management activities in the United States.
View Full Analysis
Rewards
-
Price-To-Earnings ratio (4.8x) is below the US market (14.3x)
Risks
-
Earnings are forecast to decline by an average of 11% per year for the next 3 years
-
Significant insider selling over the past 3 months
View all Risks and Rewards
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
[ad_2]
Source link
