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Investors in Microequities Asset Management Group (ASX:MAM) have made a solid return of 255% over the past three years

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For example, the Microequities Asset Management Group Limited (ASX:MAM) share price has soared 181% in the last three years. How nice for those who held the stock! In the last week shares have slid back 4.8%.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Microequities Asset Management Group

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.

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During three years of share price growth, Microequities Asset Management Group achieved compound earnings per share growth of 2.2% per year. This EPS growth is lower than the 41% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or 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. In the case of Microequities Asset Management Group, it has a TSR of 255% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Microequities Asset Management Group shareholders are down 22% for the year (even including dividends), falling short of the market return. The market shed around 2.0%, no doubt weighing on the stock price. Investors are up over three years, booking 53% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Microequities Asset Management Group (1 is a bit concerning) that you should be aware of.

Of course Microequities Asset Management Group 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 Australian exchanges.

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.

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