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Does Utah Medical Products's (NASDAQ:UTMD) Share Price Gain of 81% Match Its Business Performance?

Simply Wall St

Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Utah Medical Products, Inc. (NASDAQ:UTMD) shareholders have enjoyed a 81% share price rise over the last half decade, well in excess of the market return of around 56% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 24% in the last year , including dividends .

See our latest analysis for Utah Medical Products

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.

Over half a decade, Utah Medical Products managed to grow its earnings per share at 3.2% a year. This EPS growth is lower than the 13% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

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

NasdaqGS:UTMD Past and Future Earnings, January 17th 2020

It's probably worth noting that the CEO is paid less than the median at similar sized 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?

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 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. We note that for Utah Medical Products the TSR over the last 5 years was 94%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Utah Medical Products's TSR for the year was broadly in line with the market average, at 24%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 14%. 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. 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. Be aware that Utah Medical Products is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.