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ResMed's (NYSE:RMD) five-year earnings growth trails the splendid shareholder returns

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·3 min read
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When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on a lighter note, a good company can see its share price rise well over 100%. One great example is ResMed Inc. (NYSE:RMD) which saw its share price drive 244% higher over five years. It's also up 14% in about a month.

The past week has proven to be lucrative for ResMed investors, so let's see if fundamentals drove the company's five-year performance.

See our latest analysis for ResMed

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, ResMed managed to grow its earnings per share at 9.0% a year. This EPS growth is slower than the share price growth of 28% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 69.13.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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

It might be well worthwhile taking a look at our free report on ResMed's earnings, revenue and cash flow.

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. In the case of ResMed, it has a TSR of 264% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that ResMed has rewarded shareholders with a total shareholder return of 27% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 29% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand ResMed better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for ResMed you should know about.

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.

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

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.