Westinghouse Air Brake Technologies' (NYSE:WAB) five-year earnings growth trails the 30% YoY shareholder returns

When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. For instance, the price of Westinghouse Air Brake Technologies Corporation (NYSE:WAB) stock is up an impressive 267% over the last five years. And in the last week the share price has popped 5.2%. But this could be related to the buoyant market which is up about 2.8% in a week.

Since the stock has added US$1.6b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Over half a decade, Westinghouse Air Brake Technologies managed to grow its earnings per share at 26% a year. So the EPS growth rate is rather close to the annualized share price gain of 30% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

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

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

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Westinghouse Air Brake Technologies, it has a TSR of 278% 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 good to see that Westinghouse Air Brake Technologies has rewarded shareholders with a total shareholder return of 29% in the last twelve months. Of course, that includes the dividend. However, that falls short of the 30% TSR per annum it has made for shareholders, each year, over five years. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

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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.