Can You Imagine How Jubilant Sterling Tools' (NSE:STERTOOLS) Shareholders Feel About Its 191% Share Price Gain?

When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Sterling Tools Limited (NSE:STERTOOLS) stock is up an impressive 191% over the last five years. Also pleasing for shareholders was the 65% gain in the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

Check out our latest analysis for Sterling Tools

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Sterling Tools' earnings per share are down 12% per year, despite strong share price performance over five years.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

The modest 1.0% dividend yield is unlikely to be propping up the share price. We are not particularly impressed by the annual compound revenue growth of 1.9% over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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 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. As it happens, Sterling Tools' TSR for the last 5 years was 209%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Sterling Tools shareholders have received a total shareholder return of 32% over one year. And that does include the dividend. That's better than the annualised return of 25% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Sterling Tools , and understanding them should be part of your investment process.

We will like Sterling Tools better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

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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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