Investing in Sika (VTX:SIKA) five years ago would have delivered you a 101% gain

When we invest, we're generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Sika AG (VTX:SIKA) shareholders have enjoyed a 90% share price rise over the last half decade, well in excess of the market return of around 18% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 9.6%, including dividends.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

View our latest analysis for Sika

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

During five years of share price growth, Sika achieved compound earnings per share (EPS) growth of 9.3% per year. This EPS growth is slower than the share price growth of 14% per year, over the same period. 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 how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Sika 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. As it happens, Sika's TSR for the last 5 years was 101%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Sika shareholders gained a total return of 9.6% during the year. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 15% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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 risks, for instance. Every company has them, and we've spotted 2 warning signs for Sika you should know about.

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 Swiss 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.