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When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the Columbus McKinnon Corporation (NASDAQ:CMCO) share price has soared 203% in the last half decade. Most would be very happy with that. Also pleasing for shareholders was the 20% gain in the last three months. But this could be related to the strong market, which is up 12% in the last three months.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Columbus McKinnon's earnings per share are down 2.1% per year, despite strong share price performance over five years.
By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. 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.
The modest 0.6% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 7.1% per year is probably viewed as evidence that Columbus McKinnon is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Columbus McKinnon, it has a TSR of 214% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Columbus McKinnon provided a TSR of 16% over the last twelve months. But that return falls short of the market. On the bright side, the longer term returns (running at about 26% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Columbus McKinnon better, we need to consider many other factors. Take risks, for example - Columbus McKinnon has 4 warning signs we think you should be aware of.
Of course Columbus McKinnon may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.
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