Yahoo Finance The one-year underlying earnings growth at M.D.C. Holdings (NYSE:MDC) is promising, but the shareholders are still in the red over that time
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by M.D.C. Holdings, Inc. (NYSE:MDC) shareholders over the last year, as the share price declined 42%. That's well below the market decline of 16%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 27% in three years. Even worse, it's down 19% in about a month, which isn't fun at all. But this could be related to poor market conditions -- stocks are down 8.0% in the same time.
If the past week is anything to go by, investor sentiment for M.D.C. Holdings isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Check out our latest analysis for M.D.C. Holdings
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Even though the M.D.C. Holdings share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.
It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.
We don't see any weakness in the M.D.C. Holdings' dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how M.D.C. Holdings has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling M.D.C. Holdings stock, you should check out this FREE detailed report on its balance sheet.
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, M.D.C. Holdings' TSR for the last 1 year was -39%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 16% in the twelve months, M.D.C. Holdings shareholders did even worse, losing 39% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. To that end, you should learn about the 4 warning signs we've spotted with M.D.C. Holdings (including 2 which don't sit too well with us) .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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