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When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. To wit, the Mercedes-Benz Group share price has climbed 38% in five years, easily topping the market return of 3.6% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 1.3% in the last year, including dividends.
The past week has proven to be lucrative for Mercedes-Benz Group investors, so let's see if fundamentals drove the company's five-year performance.
Check out our latest analysis for Mercedes-Benz Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During five years of share price growth, Mercedes-Benz Group achieved compound earnings per share (EPS) growth of 25% per year. This EPS growth is higher than the 7% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 5.13 also suggests market apprehension.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Mercedes-Benz Group's key metrics by checking this interactive graph of Mercedes-Benz Group's earnings, revenue and cash flow.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Mercedes-Benz Group's TSR for the last 5 years was 116%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Mercedes-Benz Group shareholders are up 1.3% for the year (even including dividends). But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 17% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. For instance, we've identified 2 warning signs for Mercedes-Benz Group (1 makes us a bit uncomfortable) that you should be aware of.