West Pharmaceutical Services' (NYSE:WST) earnings growth rate lags the 28% CAGR delivered to shareholders
West Pharmaceutical Services, Inc. (NYSE:WST) shareholders might be concerned after seeing the share price drop 15% in the last week. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 238% return, over that period. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Only time will tell if there is still too much optimism currently reflected in the share price.
While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
View our latest analysis for West Pharmaceutical Services
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, West Pharmaceutical Services managed to grow its earnings per share at 29% a year. So the EPS growth rate is rather close to the annualized share price gain of 28% per year. This indicates that investor sentiment towards the company has not changed a great deal. Indeed, it would appear the share price is reacting to the EPS.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into West Pharmaceutical Services' key metrics by checking this interactive graph of West Pharmaceutical Services's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of West Pharmaceutical Services, it has a TSR of 243% 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
West Pharmaceutical Services shareholders are up 9.9% for the year (even including dividends). But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 28% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before spending more time on West Pharmaceutical Services it might be wise to click here to see if insiders have been buying or selling shares.
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 American 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.
