It was not the best quarter for Mastercard Incorporated (NYSE: MA) shareholders, as the share price fell 13% at that time. But that doesn’t change the fact that returns over the past five years have been very strong. We believe that most investors would be satisfied with the 198% return over that period. Therefore, even if it is never fun to see a drop in stock prices, it is important to look at a longer time horizon. Obviously, this doesn’t necessarily mean it’s cheap now.
View our latest analysis for Mastercard
While markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just the underlying business performance. An imperfect but simple way of considering how a company’s market perception has shifted is to compare the change in earnings per share (EPS) with the movement of the share price.
In over half a decade, Mastercard has managed to grow its earnings per share by 21% per year. Therefore, the EPS growth rate is quite close to the 24% annual increase in the share price. This suggests that the market sentiment towards the company did not change much over that period. Indeed, it would appear that the share price is reacting to EPS.
The following image shows how the EPS has changed over time (reveal the exact values by clicking on the image).
It is good to see that in the past three months there have been significant insider purchases. This is positive. On the other hand, we believe that revenue and earnings trends are much more significant measures of the business. Learn more about revenue by checking out this interactive Mastercard revenue, revenue and cash flow chart.
What about dividends?
In addition to measuring share price performance, investors should also consider total shareholder return (TSR). TSR is a yield calculation that takes into account the value of the cash dividends (assuming that any dividends received have been reinvested) and the calculated value of any discounted capital increases and divisions. It is correct to say that the TSR provides a more complete picture for shares that pay a dividend. We note that for Mastercard the TSR in the last 5 years has been 208%, which is better than the performance of the shares mentioned above. The dividends paid by the company therefore increased on total shareholder performance.
A different perspective
It’s nice to see that Mastercard has rewarded shareholders with an overall shareholder return of 13% in the past twelve months. And this includes the dividend. That said, the five-year TSR of 25% per year is even better. Potential buyers may understandably believe they missed the opportunity, but it is always possible that the business continues to shoot on all cylinders. It is always interesting to monitor the performance of the share price over the long term. But to better understand Mastercard, we need to consider many other factors. Consider, for example, the ever-present spectrum of investment risk. We have identified 2 warning signs with Mastercard and their understanding should be part of the investment process.
Mastercard isn’t the only action that insiders are buying. For those who love to find winning investments This free list of growing companies with recent internal purchases, it could be just the ticket.
Note that the market returns shown in this article reflect the market-weighted average returns of the stocks that are currently trading on US exchanges.
If you notice an error that requires correction, contact the editor at [email protected] This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or financial situation. Simply Wall St has no position in the actions mentioned.
We aim to provide long-term, targeted research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive or qualitative material company announcements. Thanks for reading.
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