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Is Becton Dickinson’s 119% Share Price Increase Well Justified?

Simply Wall St

The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Becton, Dickinson and Company (NYSE:BDX) shareholders would be well aware of this, since the stock is up 119% in five years. Meanwhile the share price is 1.0% higher than it was a week ago.

View our latest analysis for Becton Dickinson

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. 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.

Becton Dickinson’s earnings per share are down 6.9% per year, despite strong share price performance over five years. Essentially, it doesn’t seem likely that investors are focused on EPS. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

We doubt the modest 1.2% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 14% per year is probably viewed as evidence that Becton Dickinson is growing, a real positive. It’s quite possible that management are prioritizing revenue growth over EPS growth at the moment.

Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

NYSE:BDX Income Statement, March 5th 2019

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Becton Dickinson in this interactive graph of future profit estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Becton Dickinson’s TSR for the last 5 years was 136%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It’s nice to see that Becton Dickinson shareholders have received a total shareholder return of 18% over the last year. Of course, that includes the dividend. However, the TSR over five years, coming in at 19% per year, is even more impressive. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

Becton Dickinson 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 US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.