Did Castings' (LON:CGS) Share Price Deserve to Gain 28%?

On average, over time, stock markets tend to rise higher. This makes investing attractive. But if you choose that path, you're going to buy some stocks that fall short of the market. Unfortunately for shareholders, while the Castings P.L.C. (LON:CGS) share price is up 28% in the last year, that falls short of the market return. Unfortunately the longer term returns are not so good, with the stock falling 15% in the last three years.

See our latest analysis for Castings

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 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 year, Castings actually saw its earnings per share drop 71%.

Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

We note that the most recent dividend payment is higher than the payment a year ago, so that may have assisted the share price. It could be that the company is reaching maturity and dividend investors are buying for the yield, pushing the price up in the process.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

This free interactive report on Castings' balance sheet strength 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Castings, it has a TSR of 33% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Castings provided a TSR of 33% over the last twelve months. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 0.1% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Castings better, we need to consider many other factors. For example, we've discovered 3 warning signs for Castings (1 is a bit unpleasant!) that you should be aware of before investing here.

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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This article by Simply Wall St is general in nature. 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.
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