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Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. Don't believe it? Then look at the North American Construction Group Ltd. (TSE:NOA) share price. It's 392% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 28% gain in the last three months.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During the last half decade, North American Construction Group became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the North American Construction Group share price has gained 140% in three years. In the same period, EPS is up 87% per year. This EPS growth is higher than the 34% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 10.71.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that North American Construction Group has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling North American Construction Group stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, North American Construction Group's TSR for the last 5 years was 423%, 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
We're pleased to report that North American Construction Group shareholders have received a total shareholder return of 140% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 39%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Case in point: We've spotted 3 warning signs for North American Construction Group you should be aware of.
Of course North American Construction Group 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 CA 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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