Toromont Industries' (TSE:TIH) 22% CAGR outpaced the company's earnings growth over the same five-year period

By
Simply Wall St
Published
March 16, 2022
TSX:TIH
Source: Shutterstock

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Toromont Industries Ltd. (TSE:TIH) shareholders would be well aware of this, since the stock is up 154% in five years. In the last week the share price is up 3.5%.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for Toromont Industries

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Toromont Industries managed to grow its earnings per share at 15% a year. This EPS growth is lower than the 20% average annual increase in the share price. 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.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
TSX:TIH Earnings Per Share Growth March 16th 2022

We know that Toromont Industries has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Toromont Industries, it has a TSR of 174% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Toromont Industries has rewarded shareholders with a total shareholder return of 29% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 22% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Toromont Industries , and understanding them should be part of your investment process.

We will like Toromont Industries 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 CA exchanges.

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