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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For instance, the price of MSCI Inc. (NYSE:MSCI) stock is up an impressive 259% over the last five years. And in the last week the share price has popped 4.2%. But this could be related to the buoyant market which is up about 2.6% in a week.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
View our latest analysis for MSCI
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, MSCI achieved compound earnings per share (EPS) growth of 21% per year. This EPS growth is lower than the 29% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that MSCI has improved its bottom line lately, but is it going to grow revenue? Check if analysts think MSCI will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, MSCI's TSR for the last 5 years was 276%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
MSCI shareholders are up 4.1% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 30% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand MSCI better, we need to consider many other factors. Even so, be aware that MSCI is showing 1 warning sign in our investment analysis , you should know about...