Lonza Group's (VTX:LONN) investors will be pleased with their stellar 283% return over the last five years

By
Simply Wall St
Published
February 18, 2022
SWX:LONN
Source: Shutterstock

It hasn't been the best quarter for Lonza Group AG (VTX:LONN) shareholders, since the share price has fallen 19% in that time. But that doesn't change the fact that shareholders have received really good returns over the last five years. Indeed, the share price is up an impressive 239% in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. The more important question is whether the stock is too cheap or too expensive today.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Lonza Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, Lonza Group managed to grow its earnings per share at 9.6% a year. This EPS growth is slower than the share price growth of 28% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 67.65.

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

earnings-per-share-growth
SWX:LONN Earnings Per Share Growth February 18th 2022

This free interactive report on Lonza Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. We note that for Lonza Group the TSR over the last 5 years was 283%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Lonza Group shareholders are up 1.6% for the year (even including dividends). Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 31% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Lonza Group better, we need to consider many other factors. For instance, we've identified 1 warning sign for Lonza Group that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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