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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Stanley Black & Decker, Inc. (NYSE:SWK) share price is up 82% in the last five years, that's less than the market return. However, more recent buyers should be happy with the increase of 27% over the last year.
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, Stanley Black & Decker managed to grow its earnings per share at 5.2% a year. This EPS growth is lower than the 13% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Stanley Black & Decker has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Stanley Black & Decker will grow revenue in the future.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Stanley Black & Decker, it has a TSR of 99% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Stanley Black & Decker shareholders are up 29% for the year (even including dividends). But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 15% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Stanley Black & Decker better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Stanley Black & Decker you should know about.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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.
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