TransDigm Group's (NYSE:TDG) five-year earnings growth trails the solid shareholder returns

When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For example, the TransDigm Group Incorporated (NYSE:TDG) share price has soared 159% in the last half decade. Most would be very happy with that. And in the last month, the share price has gained 9.6%.

Since it's been a strong week for TransDigm Group shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for TransDigm Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, TransDigm Group achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is slower than the share price growth of 21% per year, over the same period. 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. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 49.20.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how TransDigm Group has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at TransDigm Group's financial health with this free report on its balance sheet.

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, TransDigm Group's TSR for the last 5 years was 193%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that TransDigm Group shareholders have received a total shareholder return of 64% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 24% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that TransDigm Group is showing 3 warning signs in our investment analysis , and 2 of those are significant...

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.