When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is AMETEK, Inc. (NYSE:AME) which saw its share price drive 108% higher over five years. On top of that, the share price is up 22% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 25% in 90 days).
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
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 8.4% per year. This EPS growth is lower than the 16% average annual increase in the share price. 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.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into AMETEK's key metrics by checking this interactive graph of AMETEK's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 AMETEK the TSR over the last 5 years was 115%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
AMETEK shareholders gained a total return of 13% during the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 17% 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. Before spending more time on AMETEK it might be wise to click here to see if insiders have been buying or selling shares.
Of course AMETEK may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
Valuation is complex, but we're here to simplify it.
Discover if AMETEK might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.