General Dynamics' (NYSE:GD) earnings growth rate lags the 12% CAGR delivered to shareholders

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But General Dynamics Corporation (NYSE:GD) has fallen short of that second goal, with a share price rise of 57% over five years, which is below the market return. Over the last twelve months the stock price has risen a very respectable 18%.

Since the long term performance has been good but there's been a recent pullback of 6.9%, let's check if the fundamentals match the share price.

View our latest analysis for General Dynamics

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, General Dynamics achieved compound earnings per share (EPS) growth of 2.6% per year. This EPS growth is slower than the share price growth of 10% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. 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 General Dynamics has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, General Dynamics' TSR for the last 5 years was 78%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

General Dynamics provided a TSR of 20% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 12% over half a decade This suggests the company might be improving over time. If you would like to research General Dynamics in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course General Dynamics 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.

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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.