When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) stock is up an impressive 118% over the last five years. And in the last month, the share price has gained 3.2%.
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 five years of share price growth, Ritchie Bros. Auctioneers achieved compound earnings per share (EPS) growth of 4.2% per year. This EPS growth is lower than the 17% 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.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Ritchie Bros. Auctioneers has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Ritchie Bros. Auctioneers stock, you should check out this FREE detailed report on its balance sheet.
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 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. We note that for Ritchie Bros. Auctioneers the TSR over the last 5 years was 140%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Ritchie Bros. Auctioneers' TSR for the year was broadly in line with the market average, at 62%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 19% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Ritchie Bros. Auctioneers better, we need to consider many other factors. Even so, be aware that Ritchie Bros. Auctioneers is showing 2 warning signs in our investment analysis , you should know about...
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 US exchanges.
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This article by Simply Wall St is general in nature. 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.
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