Valmont Industries (NYSE:VMI) sheds 9.0% this week, as yearly returns fall more in line with earnings growth
The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For instance the Valmont Industries, Inc. (NYSE:VMI) share price is 205% higher than it was three years ago. How nice for those who held the stock! But it's down 9.0% in the last week. But this could be related to the soft market, with stocks selling off around 5.2% in the last week.
Since the long term performance has been good but there's been a recent pullback of 9.0%, let's check if the fundamentals match the share price.
See our latest analysis for Valmont Industries
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 three years of share price growth, Valmont Industries achieved compound earnings per share growth of 20% per year. This EPS growth is lower than the 45% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. That's not necessarily surprising considering the three-year track record of earnings growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Valmont Industries has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Valmont Industries, it has a TSR of 215% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Valmont Industries shareholders have received a total shareholder return of 34% over one year. Of course, that includes the dividend. That's better than the annualised return of 17% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Valmont Industries better, we need to consider many other factors. Take risks, for example - Valmont Industries has 1 warning sign we think 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.
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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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