There’s no doubt that investing in the stock market is a truly brilliant way to build wealth. But if when you choose to buy stocks, some of them will be below average performers. Over the last year the McCormick & Company, Incorporated (NYSE:MKC) share price is up 22%, but that’s less than the broader market return. On the other hand, longer term shareholders have had a tougher run, with the stock falling 2.0% in 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.
See our latest analysis for McCormick
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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.
McCormick was able to grow EPS by 22% in the last twelve months. The similarity between the EPS growth and the 22% share price gain really stands out. That suggests that the market sentiment around the company hasn’t changed much over that time. It looks like the share price is responding to the EPS.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on McCormick’s earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for McCormick the TSR over the last 1 year was 25%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
McCormick provided a TSR of 25% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 1.4% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example – McCormick has 1 warning sign we think you should be aware of.
