On average, over time, stock markets tend to rise higher. This makes investing attractive. But not every stock you buy will perform as well as the overall market. Unfortunately for shareholders, while the Medtronic plc (NYSE:MDT) share price is up 11% in the last year, that falls short of the market return. Zooming out, the stock is actually down 3.7% in the last three years.
So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.
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 the last year Medtronic grew its earnings per share (EPS) by 31%. It's fair to say that the share price gain of 11% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Medtronic as it was before. This could be an opportunity.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Medtronic has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Medtronic will grow revenue in the future.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Medtronic's TSR for the last 1 year was 15%, 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
Medtronic shareholders gained a total return of 15% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 0.6% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. For example, we've discovered 1 warning sign for Medtronic that you should be aware of before investing here.
We will like Medtronic better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.