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Announcing: West Pharmaceutical Services (NYSE:WST) Stock Increased An Energizing 281% In The Last Five Years

·4 min read

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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. For example, the West Pharmaceutical Services, Inc. (NYSE:WST) share price has soared 281% in the last half decade. Most would be very happy with that. On top of that, the share price is up 41% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 18% in 90 days).

See our latest analysis for West Pharmaceutical Services

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Over half a decade, West Pharmaceutical Services managed to grow its earnings per share at 14% a year. This EPS growth is lower than the 31% average annual increase in the share price. 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. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 66.20.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on West Pharmaceutical Services' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for West Pharmaceutical Services the TSR over the last 5 years was 292%, 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

We're pleased to report that West Pharmaceutical Services shareholders have received a total shareholder return of 90% over one year. And that does include the dividend. That's better than the annualised return of 31% 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with West Pharmaceutical Services , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

This article by Simply Wall St is general in nature. 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.

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