Advertisement
Australia markets closed
  • ALL ORDS

    7,817.40
    -81.50 (-1.03%)
     
  • ASX 200

    7,567.30
    -74.80 (-0.98%)
     
  • AUD/USD

    0.6426
    +0.0000 (+0.00%)
     
  • OIL

    82.21
    -0.52 (-0.63%)
     
  • GOLD

    2,398.10
    +0.10 (+0.00%)
     
  • Bitcoin AUD

    101,548.34
    +5,119.56 (+5.31%)
     
  • CMC Crypto 200

    1,342.34
    +29.72 (+2.32%)
     
  • AUD/EUR

    0.6021
    -0.0010 (-0.17%)
     
  • AUD/NZD

    1.0892
    +0.0017 (+0.15%)
     
  • NZX 50

    11,796.21
    -39.83 (-0.34%)
     
  • NASDAQ

    17,394.31
    -99.31 (-0.57%)
     
  • FTSE

    7,841.67
    -35.38 (-0.45%)
     
  • Dow Jones

    37,775.38
    +22.07 (+0.06%)
     
  • DAX

    17,746.41
    -90.99 (-0.51%)
     
  • Hang Seng

    16,224.14
    -161.73 (-0.99%)
     
  • NIKKEI 225

    37,068.35
    -1,011.35 (-2.66%)
     

Home Depot's (NYSE:HD) five-year earnings growth trails the 12% YoY shareholder returns

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the The Home Depot, Inc. (NYSE:HD) share price is up 59% in the last 5 years, clearly besting the market return of around 46% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 5.1% in the last year , including dividends .

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

See our latest analysis for Home Depot

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

ADVERTISEMENT

During five years of share price growth, Home Depot achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is higher than the 10% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
earnings-per-share-growth

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Home Depot's earnings, revenue and cash flow.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Home Depot the TSR over the last 5 years was 80%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Home Depot provided a TSR of 5.1% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 12% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for Home Depot that you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here