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The last three months have been tough on Mineral Resources Limited (ASX:MIN) shareholders, who have seen the share price decline a rather worrying 36%. But that scarcely detracts from the really solid long term returns generated by the company over five years. In fact, the share price is 231% higher today. To some, the recent pullback wouldn't be surprising after such a fast rise. Of course, that doesn't necessarily mean it's cheap now.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Mineral Resources
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last half decade, Mineral Resources became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Mineral Resources share price has gained 150% in three years. In the same period, EPS is up 67% per year. This EPS growth is higher than the 36% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.72.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Mineral Resources has grown profits over the years, but the future is more important for shareholders. This free interactive report on Mineral Resources' balance sheet strength is a great place to start, if you want to investigate the stock further.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Mineral Resources, it has a TSR of 307% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!