The total return for Steel Dynamics (NASDAQ:STLD) investors has risen faster than earnings growth over the last three years

By
Simply Wall St
Published
May 15, 2022
NasdaqGS:STLD
Source: Shutterstock

It might be of some concern to shareholders to see the Steel Dynamics, Inc. (NASDAQ:STLD) share price down 16% in the last month. But that doesn't change the fact that the returns over the last three years have been very strong. Indeed, the share price is up a very strong 147% in that time. So the recent fall in the share price should be viewed in that context. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

In light of the stock dropping 6.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

Check out our latest analysis for Steel Dynamics

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years of share price growth, Steel Dynamics achieved compound earnings per share growth of 57% per year. The average annual share price increase of 35% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 3.60.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NasdaqGS:STLD Earnings Per Share Growth May 15th 2022

We know that Steel Dynamics has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. As it happens, Steel Dynamics' TSR for the last 3 years was 168%, 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 Steel Dynamics has rewarded shareholders with a total shareholder return of 18% in the last twelve months. Of course, that includes the dividend. However, that falls short of the 20% TSR per annum it has made for shareholders, each year, over five years. It's always interesting to track share price performance over the longer term. But to understand Steel Dynamics better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Steel Dynamics (at least 2 which are significant) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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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