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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. Long term AZZ Inc. (NYSE:AZZ) shareholders would be well aware of this, since the stock is up 207% in five years. In more good news, the share price has risen 17% in thirty days. But this could be related to good market conditions -- stocks in its market are up 12% in the last month.
Since the stock has added US$108m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
We've discovered 3 warning signs about AZZ. View them for free.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, AZZ actually saw its EPS drop 1.0% per year.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We doubt the modest 0.8% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 18% per year is probably viewed as evidence that AZZ is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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. This free report showing analyst forecasts should help you form a view on AZZ
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of AZZ, it has a TSR of 228% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.