The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market Unfortunately for shareholders, while the Tootsie Roll Industries, Inc. (NYSE:TR) share price is up 32% in the last five years, that's less than the market return. Looking at the last year alone, the stock is up 6.4%.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During five years of share price growth, Tootsie Roll Industries achieved compound earnings per share (EPS) growth of 1.4% per year. This EPS growth is slower than the share price growth of 5.7% 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 graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 Tootsie Roll Industries, it has a TSR of 39% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Tootsie Roll Industries shareholders are up 7.5% for the year (even including dividends) . But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 6.7% over half a decade This suggests the company might be improving over time. Before deciding if you like the current share price, check how Tootsie Roll Industries scores on these 3 valuation metrics.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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