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Did General Dynamics's (NYSE:GD) Share Price Deserve to Gain 28%?

Simply Wall St

If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market Unfortunately for shareholders, while the General Dynamics Corporation (NYSE:GD) share price is up 28% in the last five years, that's less than the market return. Over the last twelve months the stock price has risen a very respectable 6.0%.

View our latest analysis for General Dynamics

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, General Dynamics achieved compound earnings per share (EPS) growth of 9.2% per year. The EPS growth is more impressive than the yearly share price gain of 5.1% over the same period. So it seems the market isn't so enthusiastic about the stock these days.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

NYSE:GD Past and Future Earnings, December 15th 2019

We know that General Dynamics has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for General Dynamics the TSR over the last 5 years was 41%, 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

General Dynamics provided a TSR of 8.4% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 7.2% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. Before spending more time on General Dynamics it might be wise to click here to see if insiders have been buying or selling shares.

We will like General Dynamics better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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 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.

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.