For many, the main goal of investing in the stock market is to earn spectacular returns. Sure, the best companies are hard to find, but they can generate massive returns over long periods of time. You do not believe it ? Then watch the PennyMac Financial Services, Inc. (NYSE: PFSI) share price. This is 320% more than five years ago. And that’s just one example of the epic gains made by some long-term investors. The 12% gain over the past three months has also pleased shareholders.
Now, it’s worth looking at the fundamentals of the business as well, as this will help us determine whether the long-term return to the shareholder matches the performance of the underlying business.
To quote Buffett, “Ships will sail around the world but the Flat Earth Society will thrive. There will continue to be wide spreads between price and value in the market … ‘One way to look at how market sentiment has changed over time is to look at the interaction between price. a company’s stock and earnings per share (EPS).
Over the five years of stock price growth, PennyMac Financial Services has achieved compound earnings per share (EPS) growth of 54% per year. This EPS growth is greater than the 33% average annual increase in the share price. So it looks like the market isn’t as enthusiastic about the title these days. This cautious sentiment is reflected in its (fairly low) P / E ratio of 3.22.
You can see below how the EPS has evolved over time (see the exact values by clicking on the image).
NYSE: PFSI Earnings Per Share Growth December 27, 2021
We know that PennyMac Financial Services has improved its results over the past three years, but what does the future hold? Take a closer look at the financial health of PennyMac Financial Services with this free report on its balance sheet.
What about dividends?
In addition to measuring stock price performance, investors should also consider the total shareholder return (TSR). TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spin-off. It’s fair to say that the TSR gives a more complete picture of dividend paying stocks. In the case of PennyMac Financial Services, it has a TSR of 341% for the past 5 years. This exceeds its share price return that we mentioned earlier. The dividends paid by the company thus boosted the total shareholder return.
A different perspective
The shareholders of PennyMac Financial Services achieved a total return of 8.5% during the year. Unfortunately, this does not hit the market return. This is probably a good sign that the company has an even better long-term history, having provided shareholders with an annual TSR of 35% over five years. It is entirely possible that the company will continue to perform well, even if the stock price gains slow. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To this end, you need to know the 1 warning sign we spotted with PennyMac Financial Services .
We’ll like PennyMac Financial Services better if we see big insider buys. In the meantime, watch this free list of growing companies with significant and recent insider buying.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on the US stock exchanges.
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