The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Commerce Bancshares, Inc. (NASDAQ:CBSH) which saw its share price drive 101% higher over five years. Also pleasing for shareholders was the 18% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 9.8% in 90 days).
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. 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.
During five years of share price growth, Commerce Bancshares achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is slower than the share price growth of 15% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Commerce Bancshares's TSR for the last 5 years was 119%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Commerce Bancshares shareholders have received returns of 31% over twelve months (even including dividends) , which isn't far from the general market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 17% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. If you would like to research Commerce Bancshares in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Commerce Bancshares may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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. Thank you for reading.