U.S. markets closed
  • S&P 500

    4,662.85
    +3.82 (+0.08%)
     
  • Dow 30

    35,911.81
    -201.79 (-0.56%)
     
  • Nasdaq

    14,893.75
    +86.95 (+0.59%)
     
  • Russell 2000

    2,162.46
    +3.02 (+0.14%)
     
  • Crude Oil

    83.91
    +0.09 (+0.11%)
     
  • Gold

    1,819.50
    +3.00 (+0.17%)
     
  • Silver

    23.04
    +0.12 (+0.53%)
     
  • EUR/USD

    1.1425
    +0.0009 (+0.08%)
     
  • 10-Yr Bond

    1.7720
    +0.0610 (+3.57%)
     
  • GBP/USD

    1.3681
    +0.0002 (+0.01%)
     
  • USD/JPY

    114.4690
    +0.2690 (+0.24%)
     
  • BTC-USD

    42,778.68
    -338.46 (-0.78%)
     
  • CMC Crypto 200

    1,028.25
    +2.52 (+0.25%)
     
  • FTSE 100

    7,591.26
    +48.31 (+0.64%)
     
  • Nikkei 225

    28,333.52
    +209.24 (+0.74%)
     

If You Had Bought Donaldson Company (NYSE:DCI) Shares Five Years Ago You'd Have Earned 95% Returns

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Passive investing in index funds can generate returns that roughly match the overall market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Donaldson Company, Inc. (NYSE:DCI) share price is 95% higher than it was five years ago, which is more than the market average. In stark contrast, the stock price has actually fallen 2.8% in the last year.

See our latest analysis for Donaldson Company

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, Donaldson Company managed to grow its earnings per share at 7.4% a year. This EPS growth is slower than the share price growth of 14% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
earnings-per-share-growth

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Donaldson Company's TSR for the last 5 years was 112%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Donaldson Company shareholders are down 1.2% for the year (even including dividends), but the market itself is up 24%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 16% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For instance, we've identified 1 warning sign for Donaldson Company that you should be aware of.

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 US 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.