Yahoo Finance Donaldson Company's (NYSE:DCI) earnings growth rate lags the 15% CAGR delivered to shareholders
Vanguard founder Jack Bogle helped spearhead the low-cost index fund, putting average returns within reach of every investor. But you can make superior returns by picking better-than average stocks. For example, the Donaldson Company, Inc. (NYSE:DCI) share price is up 46% in the last three years, slightly above the market return. It's nice to see the stock price has more recent momentum, too, with a rise of 28% in the last year.
While the stock has fallen 4.2% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
View our latest analysis for Donaldson Company
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Donaldson Company was able to grow its EPS at 13% per year over three years, sending the share price higher. We note that the 13% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. This observation indicates that the market's attitude to the business hasn't changed all that much. Quite to the contrary, the share price has arguably reflected the EPS growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Donaldson Company has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Donaldson Company, it has a TSR of 53% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Donaldson Company shareholders have received a total shareholder return of 30% over the last year. Of course, that includes the dividend. That's better than the annualised return of 9% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Donaldson Company better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Donaldson Company you should know about.
We will like Donaldson Company better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.
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