CF Industries Holdings (NYSE:CF) shareholders have earned a 33% CAGR over the last five years

By
Simply Wall St
Published
May 13, 2022
NYSE:CF
Source: Shutterstock

It might be of some concern to shareholders to see the CF Industries Holdings, Inc. (NYSE:CF) share price down 10% in the last month. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 260% higher today. We think it's more important to dwell on the long term returns than the short term returns. Only time will tell if there is still too much optimism currently reflected in the share price.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for CF Industries Holdings

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During the last half decade, CF Industries Holdings became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. 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 CF Industries Holdings share price has gained 131% in three years. During the same period, EPS grew by 79% each year. This EPS growth is higher than the 32% 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 graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NYSE:CF Earnings Per Share Growth May 13th 2022

It is of course excellent to see how CF Industries Holdings has grown profits over the years, but the future is more important for shareholders. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, CF Industries Holdings' TSR for the last 5 years was 315%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that CF Industries Holdings shareholders have received a total shareholder return of 89% over one year. That's including the dividend. That's better than the annualised return of 33% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand CF Industries Holdings better, we need to consider many other factors. For example, we've discovered 3 warning signs for CF Industries Holdings (1 is a bit unpleasant!) 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 US exchanges.

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