In This Article:
When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Monolithic Power Systems, Inc. (NASDAQ:MPWR) which saw its share price drive 210% higher over five years. And in the last month, the share price has gained 13%. This could be related to the recent financial results that were recently released - you could check the most recent data by reading our company report.
Since the long term performance has been good but there's been a recent pullback of 5.7%, let's check if the fundamentals match the share price.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 five years of share price growth, Monolithic Power Systems achieved compound earnings per share (EPS) growth of 70% per year. The EPS growth is more impressive than the yearly share price gain of 25% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Monolithic Power Systems has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Monolithic Power Systems stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Monolithic Power Systems' TSR for the last 5 years was 222%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Investors in Monolithic Power Systems had a tough year, with a total loss of 11% (including dividends), against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 26% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Take risks, for example - Monolithic Power Systems has 4 warning signs (and 2 which can't be ignored) we think you should know about.