If You Had Bought Sterling Tools (NSE:STERTOOLS) Stock Five Years Ago, You Could Pocket A 112% Gain Today

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on a lighter note, a good company can see its share price rise well over 100%. For example, the Sterling Tools Limited (NSE:STERTOOLS) share price has soared 112% in the last half decade. Most would be very happy with that. It's also good to see the share price up 13% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 18% in 90 days).

View our latest analysis for Sterling Tools

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Sterling Tools' earnings per share are down 9.8% per year, despite strong share price performance over five years.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 1.0% dividend yield is attracting many buyers to the stock. The revenue reduction of 0.3% per year is not a positive. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

If you are thinking of buying or selling Sterling Tools stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Sterling Tools' TSR for the last 5 years was 125%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Sterling Tools shareholders are up 13% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 18% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Sterling Tools better, we need to consider many other factors. Take risks, for example - Sterling Tools has 3 warning signs (and 1 which is significant) we think you should know about.

But note: Sterling Tools may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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