Buying shares in the best businesses can build meaningful wealth for you and your family. And highest quality companies can see their share prices grow by huge amounts. To wit, the Teekay Tankers Ltd. (NYSE:TNK) share price has soared 389% over five years. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 38% gain in the last three months.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During the last half decade, Teekay Tankers became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Teekay Tankers share price has gained 79% in three years. Meanwhile, EPS is up 76% per year. This EPS growth is higher than the 21% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.43.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Teekay Tankers has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Teekay Tankers' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's nice to see that Teekay Tankers shareholders have received a total shareholder return of 220% over the last year. That gain is better than the annual TSR over five years, which is 37%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Is Teekay Tankers cheap compared to other companies? These 3 valuation measures might help you decide.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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.
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