Yahoo Finance Mercia Asset Management's (LON:MERC) investors will be pleased with their 30% return over the last year
Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. For example, the Mercia Asset Management PLC (LON:MERC) share price is up 25% in the last 1 year, clearly besting the market return of around 1.6% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! However, the stock hasn't done so well in the longer term, with the stock only up 10% in three years.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for Mercia Asset Management
Mercia Asset Management wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually desire strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over the last twelve months, Mercia Asset Management's revenue grew by 27%. That's a fairly respectable growth rate. Buyers pushed the share price 25% in response, which isn't unreasonable. If the company can maintain the revenue growth, the share price could go higher still. But before deciding this growth stock is underappreciated, you might want to check out profitability trends (and cash flow)
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Mercia Asset Management the TSR over the last 1 year was 30%, 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 Mercia Asset Management shareholders have received a total shareholder return of 30% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.3% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Mercia Asset Management you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.
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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.
