Passive investing in index funds can generate returns that roughly match the overall market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Monster Beverage Corporation (NASDAQ:MNST) share price is up 91% in the last five years, slightly above the market return. Also positive is the 6.9% share price rise over the last year.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
See our latest analysis for Monster Beverage
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…’ By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Monster Beverage achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is reasonably close to the 14% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. In fact, the share price seems to largely reflect the EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Monster Beverage shareholders are up 6.9% for the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 14% per year for five years. It’s quite possible the business continues to execute with prowess, even as the share price gains are slowing. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).
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.
