Shareholders Of Caterpillar (NYSE:CAT) Must Be Happy With Their 194% Total Return

By
Simply Wall St
Published
July 27, 2021
NYSE:CAT
Source: Shutterstock

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of Caterpillar Inc. (NYSE:CAT) stock is up an impressive 158% over the last five years. Meanwhile the share price is 3.9% higher than it was a week ago.

Check out our latest analysis for Caterpillar

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Over half a decade, Caterpillar managed to grow its earnings per share at 19% a year. This EPS growth is reasonably close to the 21% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Rather, the share price has approximately tracked EPS 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
NYSE:CAT Earnings Per Share Growth July 27th 2021

Dive deeper into Caterpillar's key metrics by checking this interactive graph of Caterpillar's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Caterpillar, it has a TSR of 194% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Caterpillar shareholders have received a total shareholder return of 54% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 24%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Caterpillar better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Caterpillar (of which 1 shouldn't be ignored!) you should know about.

We will like Caterpillar better if we see some big insider buys. While we wait, check out this free list of growing companies 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 US 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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