Those who invested in McKesson (NYSE:MCK) five years ago are up 366%

Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the McKesson Corporation (NYSE:MCK) share price is up a whopping 351% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 10% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 8.2% in 90 days).

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.

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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.

Over half a decade, McKesson managed to grow its earnings per share at 39% a year. This EPS growth is reasonably close to the 35% average annual increase in the share price. 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).

It is of course excellent to see how McKesson has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at McKesson's financial health with this free 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, McKesson's TSR for the last 5 years was 366%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that McKesson has rewarded shareholders with a total shareholder return of 20% in the last twelve months. Of course, that includes the dividend. However, the TSR over five years, coming in at 36% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with McKesson , and understanding them should be part of your investment process.

We will like McKesson 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.