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When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Main Street Capital Corporation (NYSE:MAIN) stock is up an impressive 173% over the last five years. Meanwhile the share price is 2.6% higher than it was a week ago.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Over half a decade, Main Street Capital managed to grow its earnings per share at 23% a year. That makes the EPS growth particularly close to the yearly share price growth of 22%. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Main Street Capital has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Main Street Capital 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 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, Main Street Capital's TSR for the last 5 years was 301%, 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
It's nice to see that Main Street Capital shareholders have received a total shareholder return of 38% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 32% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Main Street Capital better, we need to consider many other factors. Even so, be aware that Main Street Capital is showing 5 warning signs in our investment analysis , and 2 of those are significant...