Danaos' (NYSE:DAC) earnings growth rate lags the 52% CAGR delivered to shareholders

For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. To wit, the Danaos Corporation (NYSE:DAC) share price has soared 597% over five years. And this is just one example of the epic gains achieved by some long term investors. It's down 4.0% in the last seven days. We love happy stories like this one. The company should be really proud of that performance!

Although Danaos has shed US$67m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Danaos

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 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).

Over half a decade, Danaos managed to grow its earnings per share at 112% a year. This EPS growth is higher than the 47% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 2.78.

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

We know that Danaos has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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. We note that for Danaos the TSR over the last 5 years was 701%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Danaos provided a TSR of 30% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 52% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should learn about the 2 warning signs we've spotted with Danaos (including 1 which is potentially serious) .

We will like Danaos 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.