Quanta Services' (NYSE:PWR) investors will be pleased with their massive 626% return over the last five years

For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Quanta Services, Inc. (NYSE:PWR) shares for the last five years, while they gained 616%. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 25% in about a quarter. Anyone who held for that rewarding ride would probably be keen to talk about it.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Quanta Services

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).

Over half a decade, Quanta Services managed to grow its earnings per share at 19% a year. This EPS growth is lower than the 48% 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. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 58.42.

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

We know that Quanta Services has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Quanta Services will grow revenue in the future.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Quanta Services' TSR for the last 5 years was 626%, 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

It's nice to see that Quanta Services shareholders have received a total shareholder return of 90% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 49% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 2 warning signs for Quanta Services that you should be aware of.

We will like Quanta Services 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.