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Is Federal Agricultural Mortgage’s (NYSE:AGM) Share Price Gain Of 115% Well Earned?

Simply Wall St

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Federal Agricultural Mortgage Corporation (NYSE:AGM) shareholders have seen the share price descend 12% over the month. But that doesn’t change the fact that shareholders have received really good returns over the last five years. In fact, the share price is 115% higher today. To some, the recent pullback wouldn’t be surprising after such a fast rise. Of course, that doesn’t necessarily mean it’s cheap now.

View our latest analysis for Federal Agricultural Mortgage

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, Federal Agricultural Mortgage managed to grow its earnings per share at 6.0% a year. This EPS growth is lower than the 17% 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 five years ago. And that’s hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

NYSE:AGM Past and Future Earnings, March 26th 2019

We know that Federal Agricultural Mortgage has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Federal Agricultural Mortgage will grow revenue in the future.

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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Federal Agricultural Mortgage, it has a TSR of 143% for the last 5 years. 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

Investors in Federal Agricultural Mortgage had a tough year, with a total loss of 14% (including dividends), against a market gain of about 6.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 19%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.