Encore Wire's (NASDAQ:WIRE) 33% CAGR outpaced the company's earnings growth over the same five-year period
Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. For example, the Encore Wire Corporation (NASDAQ:WIRE) share price is up a whopping 315% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. We note the stock price is up 5.2% in the last seven days.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
Check out our latest analysis for Encore Wire
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.
Over half a decade, Encore Wire managed to grow its earnings per share at 44% a year. The EPS growth is more impressive than the yearly share price gain of 33% over the same period. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 10.06 also suggests market apprehension.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Encore Wire has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Encore Wire 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). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Encore Wire the TSR over the last 5 years was 317%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Encore Wire shareholders have received returns of 34% 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 33% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Encore Wire better, we need to consider many other factors. Even so, be aware that Encore Wire is showing 2 warning signs in our investment analysis , and 1 of those is concerning...
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
