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While Monash IVF Group Limited (ASX:MVF) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 28% in the last quarter. On the bright side the share price is up over the last half decade. However we are not very impressed because the share price is only up 55%, less than the market return of 86%. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 42% decline over the last twelve months.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 five years of share price growth, Monash IVF Group actually saw its EPS drop 24% per year. The impact of extraordinary items on earnings, in the last year, partially explain the diversion.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We note that the dividend has not increased, so that doesn't seem to explain the increase, either. It could be that the revenue growth of 12% per year is viewed as evidence that Monash IVF Group is growing. In that case, the company may be sacrificing current earnings per share to drive growth.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Monash IVF Group's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Monash IVF Group's TSR for the last 5 years was 87%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!