Investing in AMETEK (NYSE:AME) five years ago would have delivered you a 104% gain

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. For example, long term AMETEK, Inc. (NYSE:AME) shareholders have enjoyed a 98% share price rise over the last half decade, well in excess of the market return of around 77% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 13%, including dividends.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for AMETEK

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, AMETEK achieved compound earnings per share (EPS) growth of 10% per year. This EPS growth is lower than the 15% average annual increase in the share price. 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.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that AMETEK has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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. As it happens, AMETEK's TSR for the last 5 years was 104%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

AMETEK shareholders gained a total return of 13% during the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 15% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

We will like AMETEK better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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