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These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the M&G plc (LON:MNG) share price is 26% higher than it was a year ago, much better than the market return of around 20% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! We'll need to follow M&G for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for M&G
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year, M&G actually saw its earnings per share drop 94%.
So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We note that the most recent dividend payment is higher than the payment a year ago, so that may have assisted the share price. Income-seeking investors probably helped bid up the stock price. Furthermore, the revenue growth of 57% probably also encouraged buyers.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
M&G is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for M&G in this interactive graph of future profit estimates.
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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for M&G the TSR over the last 1 year was 39%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!