ARC Resources (TSE:ARX) pulls back 4.4% this week, but still delivers shareholders incredible 39% CAGR over 5 years

Buying shares in the best businesses can build meaningful wealth for you and your family. While not every stock performs well, when investors win, they can win big. Don't believe it? Then look at the ARC Resources Ltd. (TSE:ARX) share price. It's 339% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. In contrast, the stock has fallen 9.4% in the last 30 days.

Since the long term performance has been good but there's been a recent pullback of 4.4%, let's check if the fundamentals match the share price.

We've discovered 1 warning sign about ARC Resources. View them for free.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 the last half decade, ARC Resources became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the ARC Resources share price has gained 43% in three years. Meanwhile, EPS is up 15% per year. That makes the EPS growth rather close to the annualized share price gain of 13% over the same period. So one might argue that investor sentiment towards the stock hss not changed much over time. Arguably the share price is reflecting the earnings per share.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of ARC Resources' earnings, revenue and cash flow.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for ARC Resources the TSR over the last 5 years was 416%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

ARC Resources shareholders gained a total return of 7.0% during the year. But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 39% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. For instance, we've identified 1 warning sign for ARC Resources that you should be aware of.

ARC Resources is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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