2 weeks Ago By Simply Wall St.
In This Article: For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Vertiv Holdings Co ( NYSE:VRT ) share price has soared 834% over five years.
And this is just one example of the epic gains achieved by some long term investors. It's even up 3.7% in the last week.
Anyone who held for that rewarding ride would probably be keen to talk about it. On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns. See our latest analysis for Vertiv Holdings Co To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine.
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 the last half decade, Vertiv Holdings Co 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.
Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Vertiv Holdings Co share price has gained 474% in three years. In the same period, EPS is up 57% per year.
Notably, the EPS growth has been slower than the annualised share price gain of 79% over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago. The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
. What About Dividends? As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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.
Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Vertiv Holdings Co, it has a TSR of 837% for the last 5 years. That exceeds its share price return that we previously mentioned.
This is largely a result of its dividend payments!.
