Yahoo Finance Spirax-Sarco Engineering (LON:SPX) jumps 3.2% this week, though earnings growth is still tracking behind five-year shareholder returns
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Spirax-Sarco Engineering plc (LON:SPX) shareholders have enjoyed a 91% share price rise over the last half decade, well in excess of the market decline of around 5.3% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.9% in the last year , including dividends .
Since it's been a strong week for Spirax-Sarco Engineering shareholders, let's have a look at trend of the longer term fundamentals.
See our latest analysis for Spirax-Sarco Engineering
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 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.
Over half a decade, Spirax-Sarco Engineering managed to grow its earnings per share at 7.3% a year. This EPS growth is lower than the 14% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Spirax-Sarco Engineering's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Spirax-Sarco Engineering's TSR for the last 5 years was 103%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Spirax-Sarco Engineering shareholders have received returns of 6.9% over twelve months (even including dividends), which isn't far from the general market return. We should note here that the five-year TSR is more impressive, at 15% per year. Although the share price growth has slowed, the longer term story points to a business well worth watching. It's always interesting to track share price performance over the longer term. But to understand Spirax-Sarco Engineering better, we need to consider many other factors. For instance, we've identified 1 warning sign for Spirax-Sarco Engineering that you should be aware of.
Spirax-Sarco Engineering is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British 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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