Moody’s (NYSE:MCO) shareholders have enjoyed an average annual growth rate of 18% over the past five years.
The worst possible outcome after buying company stocks (without leverage) would be if you lost all your invested money. But the good news is that if you buy shares of a high-quality company at the right price, you can gain well over 100%. For example, the Moody’s Corporation (NYSE:MCO) The stock price has risen 122% over the past five years. Most people would be very happy with that. Also pleasing for shareholders was the 17% increase over the past three months.
Now it is worth taking a look at the company’s fundamentals, as this is the only way we can determine whether the long-term shareholder return corresponds to the performance of the underlying business.
Check out our latest analysis for Moody’s
To quote Buffett, “Ships will sail around the world, but the Flat Earth Society will flourish. There will continue to be huge discrepancies between price and value in the marketplace…” By comparing earnings per share (EPS) and share price changes over time, we can get a sense of how investor attitudes toward a company have changed over time.
Over half a decade, Moody’s managed to grow its earnings per share by 9.4% per year. This EPS growth is lower than the average annual share price increase of 17%. So it’s safe to assume that the market has a higher opinion of the company than it did five years ago. And that’s hardly surprising given its growth track record. This optimism is reflected in its rather high P/E ratio of 46.98.
The company’s earnings per share (over time) is shown in the image below (click to see the exact numbers).
We know that Moody’s has been improving its earnings recently, but will it also increase its revenue? If you’re interested, you can read about it here. free Report with consensus forecasts for sales.
What about dividends?
In addition to measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR takes into account the value of any spin-offs or discounted capital raisings, as well as 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 dividend-paying stocks. We note that the TSR for Moody’s over the last 5 years was 132%, which is better than the share price return quoted above. And there’s no prize for guessing that dividend payments largely explain the divergence!
A different perspective
We are pleased to report that Moody’s shareholders have received a total return of 45% over one year. This includes the dividend, of course. That’s better than the 18% annualised return over half a decade, meaning the company has been doing better recently. Someone with an optimistic perspective might view the recent improvement in the TSR as an indication that the business itself is getting better with time. It’s always interesting to follow share price trends over a longer period of time. But to better understand Moody’s, we need to consider many other factors. A case in point: We found 2 warning signals for Moody’s You should be aware.
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Please note that the market returns quoted in this article reflect the market weighted average returns of stocks currently trading on U.S. exchanges.
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