Waste Management's (NYSE:WM) five-year earnings growth trails the 15% YoY shareholder returns
When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Waste Management, Inc. (NYSE:WM) shareholders have enjoyed a 83% share price rise over the last half decade, well in excess of the market return of around 45% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 0.7% , including dividends .
Since it's been a strong week for Waste Management shareholders, let's have a look at trend of the longer term fundamentals.
View our latest analysis for Waste Management
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
During five years of share price growth, Waste Management achieved compound earnings per share (EPS) growth of 4.4% per year. This EPS growth is lower than the 13% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Waste Management 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?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Waste Management's TSR for the last 5 years was 100%, 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 Waste Management has rewarded shareholders with a total shareholder return of 0.7% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 15% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Waste Management better, we need to consider many other factors. For example, we've discovered 2 warning signs for Waste Management that you should be aware of before investing here.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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.
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