When buying shares in a company, it's worth bearing in mind that the company could fail and you could lose money. However, on a lighter note, a good company can have its stock price rise well over 100%. for example, Toromont Industrial Co., Ltd. (TSE:TIH) stock has soared 101% over the past five years. Most people will be very happy with it.
Let's look at the underlying fundamentals over the long term and see if they are aligned with shareholder returns.
Check out our latest analysis for Toromont Industries.
To paraphrase Benjamin Graham, in the short term the market is a voting machine, but in the long term it is a weighing machine. One way he looks at how market sentiment has changed over time is to look at the interaction between a company's share price and his earnings per share (EPS).
Toromont Industries has managed to grow its earnings per share at 16% per year, over five years. This makes the EPS growth rate particularly close to the annual share price growth rate of 15%. This shows that investor sentiment towards the company has not changed significantly. Rather, the stock price has roughly tracked his EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future profits will be far more important than whether current shareholders make money. Dive deeper into its earnings by checking this interactive graph of Toromont Industries' earnings, revenue and cash flow.
What will happen to the dividend?
As well as measuring share price return, investors should also consider total shareholder return (TSR). Whereas the price/earnings ratio only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return delivered by a stock. We note that Toromont Industries' TSR over the last five years was 117%, which is better than the share price return mentioned above. This is primarily due to dividend payments.
different perspective
It's good to see that Toromont Industries shareholders received a total shareholder return of 21% over the last year. Of course, this includes dividends. The stock appears to have performed better recently, as the 1-year TSR is better than his 5-year TSR (the latter is 17% per annum). Optimists might think that the recent improvement in TSR indicates that the business itself is improving over time. It's good to see insiders are buying shares, but we recommend checking here to see at what price they are buying.
If you want to buy stocks with management, you might like this free List of companies. (Hint: Insiders are buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian exchanges.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
