For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. While the MSG Networks Inc. ( NYSE:MSGN ) share price appears to have fallen over the past five years, this is due to the fact that MSG Networks spun off The Madison Square Garden Company in 2015, which contained a majority of its assets. Although the share price looks lower,returns to shareholders have been decent due to this spin-off.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
In the past 3 years, revenue has grown at approximately 3% per annum, while earnings per share have grown at approximately 20% a year over this time.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
MSG Networks is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for MSG Networks in this interactive graph of future profit estimates .
What about the Total Shareholder Return (TSR)?
We’d be remiss not to highlight the difference between MSG Networks’s total shareholder return (TSR) and its share price return . Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that MSG Networks’s TSR, at 30% is quite decent. This is predominantly due to the spin-off of the Madison Square Garden Company to shareholders. We don’t include the returns of the spin-off stock in MSG Network’s TSR, but if you’d held your Madison Square Garden Co shares, you would be up just under 100% since the spin-off in September 2015.
A Different Perspective
While the broader market gained around 1.4% in the last year, the MSG Networks share price fell 8.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a total shareholder return of approximately 5.3% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering.
Before forming an opinion on MSG Networks you might want to consider these 3 valuation metrics. If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
An earlier version of this article did not account for The Madison Square Garden Company spin-off, and the article has been updated to reflect this.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges. We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. If you spot an error that warrants correction, please contact the editor at email@example.com . This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.