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Buying shares in the best businesses can build meaningful wealth for you and your family. While not every stock performs well, when investors win, they can win big. Don't believe it? Then look at the Global Industrial Company (NYSE:GIC) share price. It's 361% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. On top of that, the share price is up 13% in about a quarter. But this could be related to the strong market, which is up 5.7% in the last three months.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Global Industrial moved from a loss to profitability. 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 Global Industrial share price has gained 7.9% in three years. During the same period, EPS grew by 0.2% each year. Notably, the EPS growth has been slower than the annualised share price gain of 2.6% over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Global Industrial has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Global Industrial the TSR over the last 5 years was 668%, 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
It's good to see that Global Industrial has rewarded shareholders with a total shareholder return of 91% in the last twelve months. And that does include the dividend. That's better than the annualised return of 50% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Global Industrial better, we need to consider many other factors. For example, we've discovered 1 warning sign for Global Industrial that you should be aware of before investing here.
Of course Global Industrial 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 US exchanges.
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.
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