Yahoo Finance Federal Signal's (NYSE:FSS) 28% CAGR outpaced the company's earnings growth over the same five-year period
The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, you can make far more than 100% on a really good stock. Long term Federal Signal Corporation (NYSE:FSS) shareholders would be well aware of this, since the stock is up 222% in five years. Also pleasing for shareholders was the 11% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 9.4% in 90 days).
The past week has proven to be lucrative for Federal Signal investors, so let's see if fundamentals drove the company's five-year performance.
View our latest analysis for Federal Signal
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, Federal Signal managed to grow its earnings per share at 11% a year. This EPS growth is slower than the share price growth of 26% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Federal Signal has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Federal Signal will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Federal Signal's TSR for the last 5 years was 237%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Federal Signal shareholders have received a total shareholder return of 60% over the last year. Of course, that includes the dividend. That's better than the annualised return of 28% 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. Before spending more time on Federal Signal it might be wise to click here to see if insiders have been buying or selling shares.
But note: Federal Signal 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 American 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.
