New Zealand markets close in 1 hour 5 minutes
  • NZX 50

    11,696.92
    -31.55 (-0.27%)
     
  • NZD/USD

    0.6242
    +0.0002 (+0.02%)
     
  • NZD/EUR

    0.6126
    +0.0005 (+0.09%)
     
  • ALL ORDS

    7,260.30
    +10.00 (+0.14%)
     
  • ASX 200

    7,021.10
    +5.50 (+0.08%)
     
  • OIL

    89.35
    +0.34 (+0.38%)
     
  • GOLD

    1,788.70
    -2.50 (-0.14%)
     
  • NASDAQ

    13,207.69
    -103.31 (-0.78%)
     
  • FTSE

    7,439.74
    -8.32 (-0.11%)
     
  • Dow Jones

    32,803.47
    +76.67 (+0.23%)
     
  • DAX

    13,573.93
    -88.77 (-0.65%)
     
  • Hang Seng

    20,046.03
    -155.91 (-0.77%)
     
  • NIKKEI 225

    28,265.39
    +89.52 (+0.32%)
     
  • NZD/JPY

    84.3040
    +0.0980 (+0.12%)
     

Moody's' (NYSE:MCO) five-year total shareholder returns outpace the underlying earnings growth

·3-min read

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, you can make far more than 100% on a really good stock. Long term Moody's Corporation (NYSE:MCO) shareholders would be well aware of this, since the stock is up 144% in five years. In the last week shares have slid back 7.2%.

Although Moody's has shed US$4.1b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Moody's

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, Moody's managed to grow its earnings per share at 37% a year. The EPS growth is more impressive than the yearly share price gain of 20% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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

It might be well worthwhile taking a look at our free report on Moody's' earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Moody's, it has a TSR of 156% 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

We regret to report that Moody's shareholders are down 14% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 11%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 21%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Even so, be aware that Moody's is showing 2 warning signs in our investment analysis , you should know about...

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.

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.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting