The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Mesa Laboratories, Inc. (NASDAQ:MLAB) which saw its share price drive 148% higher over five years.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
We don't think that Mesa Laboratories' modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
For the last half decade, Mesa Laboratories can boast revenue growth at a rate of 8.8% per year. That's a pretty good long term growth rate. Broadly speaking, this solid progress may well be reflected by the healthy share price gain of 20% per year over five years. It's well worth monitoring the growth trend in revenue, because if growth accelerates, that might signal an opportunity. Accelerating growth can be a sign of an inflection point - and could indicate profits lie ahead. Worth watching 100%
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Mesa Laboratories has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Mesa Laboratories
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 Mesa Laboratories the TSR over the last 5 years was 153%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Mesa Laboratories shareholders are up 13% for the year (even including dividends). But that was short of the market average. If we look back over five years, the returns are even better, coming in at 20% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Mesa Laboratories better, we need to consider many other factors. Take risks, for example - Mesa Laboratories has 2 warning signs (and 1 which is concerning) we think you should know about.
But note: Mesa Laboratories may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.