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Should McCarthy & Stone (LON:MCS) Be Disappointed With Their 33% Profit?

Simply Wall St

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But you can significantly boost your returns by picking above-average stocks. To wit, the McCarthy & Stone plc (LON:MCS) share price is 33% higher than it was a year ago, much better than the market return of around -1.4% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Unfortunately the longer term returns are not so good, with the stock falling 14% in the last three years.

See our latest analysis for McCarthy & Stone

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. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over the last twelve months, McCarthy & Stone actually shrank its EPS by 36%. This means it's unlikely the market is judging the company based on earnings growth. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

We think that the revenue growth of 7.6% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

LSE:MCS Income Statement, July 30th 2019

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling McCarthy & Stone stock, you should check out this free report showing analyst profit forecasts.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for McCarthy & Stone the TSR over the last year was 38%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that McCarthy & Stone shareholders have gained 38% (in total) over the last year. That's including the dividend. This recent result is much better than the 1.5% drop suffered by shareholders each year (on average) over the last three. We're generally cautious about putting too much weigh on shorter term data, but the recent improvement is definitely a positive. Before forming an opinion on McCarthy & Stone you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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