Advanced Drainage Systems (NYSE:WMS) lifts 5.3% this week, taking five-year gains to 405%

For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Just think about the savvy investors who held Advanced Drainage Systems, Inc. (NYSE:WMS) shares for the last five years, while they gained 393%. This just goes to show the value creation that some businesses can achieve. Better yet, the share price has risen 5.3% in the last week.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

See our latest analysis for Advanced Drainage Systems

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

During the five years of share price growth, Advanced Drainage Systems moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Advanced Drainage Systems share price has gained 36% in three years. During the same period, EPS grew by 33% each year. This EPS growth is higher than the 11% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.

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

We know that Advanced Drainage Systems has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Advanced Drainage Systems' financial health with this free report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Advanced Drainage Systems the TSR over the last 5 years was 405%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Advanced Drainage Systems' TSR for the year was broadly in line with the market average, at 29%. It has to be noted that the recent return falls short of the 38% shareholders have gained each year, over half a decade. Although the share price growth has slowed, the longer term story points to a business well worth watching. It's always interesting to track share price performance over the longer term. But to understand Advanced Drainage Systems better, we need to consider many other factors. For example, we've discovered 2 warning signs for Advanced Drainage Systems that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.