Investing in Packaging Corporation of America (NYSE:PKG) five years ago would have delivered you a 138% gain

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, you can make far more than 100% on a really good stock. For instance, the price of Packaging Corporation of America (NYSE:PKG) stock is up an impressive 103% over the last five years. Also pleasing for shareholders was the 17% gain in the last three months.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

See our latest analysis for Packaging Corporation of America

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Packaging Corporation of America's earnings per share are down 0.9% per year, despite strong share price performance over five years.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

On the other hand, Packaging Corporation of America's revenue is growing nicely, at a compound rate of 4.2% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

If you are thinking of buying or selling Packaging Corporation of America 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Packaging Corporation of America the TSR over the last 5 years was 138%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Packaging Corporation of America has rewarded shareholders with a total shareholder return of 47% in the last twelve months. And that does include the dividend. That's better than the annualised return of 19% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 2 warning signs with Packaging Corporation of America , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.