CMC Markets (LON: CMCX) is down 4.9% this week as annual returns align more closely with earnings growth
Some CMC Markets plc (LON: CMCX) Shareholders are more likely to be concerned that the share price has fallen 44% in the past three months. In contrast, the return over three years is impressive. In fact, the share price has soared a very strong 130% during that time. The latest price decline should be seen in this context. The thing to consider is whether the underlying business is doing well enough to support the current price.
Since long-term performance has been good but has recently declined 4.9%, let’s see if the fundamentals are in line with the stock price.
Check out our latest analysis for CMC Markets
While markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just underlying business performance. An imperfect, but simple, way to look at how a company’s market perception has changed is to compare the change in earnings per share (EPS) with the development of the share price.
Over the three years of stock price growth, CMC Markets achieved average earnings per share of 52% per year. The average annual share price increase of 32% is even below the EPS growth. So one could reasonably conclude that the market for the stock has cooled. We assume that the low P / E ratio of 4.31 also reflects the negative sentiment surrounding the share.
The picture below shows how EPS has evolved over time (you can click on the picture to see more details).
LSE: CMCX earnings per share growth October 12, 2021
We know CMC Markets has improved its bottom line over the past three years, but what does the future hold in store? This is taking a closer look at the financial health of CMC Markets for free report on its balance sheet.
What about dividends?
In addition to measuring stock price return, investors should also consider Total Shareholder Return (TSR). The TSR is a yield calculation that takes into account the value of cash dividends (assuming all dividends received have been reinvested) and the calculated value of all discounted capital increases and spin-offs. So, for companies that pay a generous dividend, the TSR is often much higher than the stock price return. In fact, CMC Markets’ TSR has been 167% over the past 3 years, which beats the previously mentioned share price return. This is mainly due to its dividend payments!
While the broader market gained around 24% last year, CMC Markets shareholders lost 18% (including dividends). Remember, however, that even the best stocks can sometimes lag behind the market over a twelve month period. Longer term investors wouldn’t be so upset as they would have made 12% every year over a five year period. The recent sell-off could be an opportunity, so it may be worth checking the fundamentals for signs of a long-term growth trend. I find it very interesting to look at the share price as a proxy for business development over the long term. But to really gain insight, we need to consider other information as well. Take risks, for example – CMC Markets has 4 warning signs (and 2 that matter) we think you should know.
If you’re into buying stocks alongside management, then maybe you will love this for free List of companies. (Note: Insiders bought them).
Please note that the market returns reported in this article reflect the market weighted average returns on stocks currently trading on UK stock exchanges.
This article from Simply Wall St is of a general nature. We only provide comments based on historical data and analyst projections using an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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