FW Thorpe's (LON:TFW) earnings growth rate lags the 8.6% CAGR delivered to shareholders

By
Simply Wall St
Published
February 25, 2022
AIM:TFW
Source: Shutterstock

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the FW Thorpe share price has climbed 38% in five years, easily topping the market decline of 3.0% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 31% in the last year , including dividends .

While the stock has fallen 7.6% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for FW Thorpe

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).

Over half a decade, FW Thorpe managed to grow its earnings per share at 3.7% a year. This EPS growth is slower than the share price growth of 7% 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. That's not necessarily surprising considering the five-year track record of earnings growth.

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

earnings-per-share-growth
AIM:TFW Earnings Per Share Growth February 25th 2022

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on FW Thorpe's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, FW Thorpe's TSR for the last 5 years was 51%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that FW Thorpe shareholders have received a total shareholder return of 31% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before forming an opinion on FW Thorpe you might want to consider these 3 valuation metrics.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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