The maximum amount you can lose on any stock (assuming no leverage is used) is 100% of your capital. On a lighter note, however, great companies can see stock prices rise well over 100%. One great example is microsoft (NASDAQ:MSFT) shares are up 155% in five years.
Let’s look at the underlying fundamentals over the long term and see if they align with shareholder returns.
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The efficient market hypothesis continues to be taught by some, but it has been proven that markets are overly reactive dynamic systems and investors are not always rational. One way to see how market sentiment has changed over time is to look at the interaction between a company’s stock price and earnings per share (EPS).
During the five-year stock rally, Microsoft increased its compound earnings per share (EPS) by 22% annually. So the EPS growth rate is pretty close to an annualized stock price appreciation of 21% per annum. This suggests that market sentiment surrounding the company has not changed much over that time. Rather, the stock roughly tracks EPS growth.
The image below shows how the EPS tracked over time (click image for more details).
We take it positively that insiders have made significant purchases in the last year. Still, future profits are far more important than whether current shareholders are profitable.this freedom Microsoft interactive reports Earnings, earnings and cash flow are a great place to start if you want to explore the stock further.
When looking at return on investment, it’s important to consider the following differences: Total shareholder return (TSR) and stock price returnTSR is an earnings calculation that accounts for the value of cash dividends (assuming dividends received are reinvested) and the calculated value of discounted capital raisings and spin-offs. As such, for companies that pay large dividends, the TSR is often much higher than the stock price return. For Microsoft, TSR over the last five years is 171%. This outperforms the aforementioned stock return. And there are no prizes to speculate that dividend payouts account for the difference primarily!
another point of view
Unfortunately, Microsoft’s stockholders have fallen by 18% over the year (including dividends). Unfortunately, this is more serious than his 10% decline in the market as a whole. That said, it’s inevitable that some stocks will be oversold in a down market. The key is to look at the basic deployment. On the bright side, long-term shareholders are profitable, earning 22% per annum over five years. If the fundamental data continue to point to long-term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at stock prices over the long term as an indicator of performance. But for true insight, other information must also be considered.Case in point: we found 1 Microsoft warning signs you should know.
If you like buying stocks with management, you might like this one freedom company list. (Hint: Insiders are buying).
Please note that the market returns quoted in this article reflect market-weighted average returns for stocks currently traded on US exchanges.
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies 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 objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …