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Buying shares in the best businesses can build meaningful wealth for you and your family. And we've seen some truly amazing gains over the years. Just think about the savvy investors who held Signet Jewelers Limited (NYSE:SIG) shares for the last five years, while they gained 585%. And this is just one example of the epic gains achieved by some long term investors. We note the stock price is up 1.4% in the last seven days. We love happy stories like this one. The company should be really proud of that performance!
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, Signet Jewelers managed to grow its earnings per share at 27% a year. We do note that extraordinary items have impacted its earnings history. This EPS growth is slower than the share price growth of 47% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. 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).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Signet Jewelers' earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Signet Jewelers the TSR over the last 5 years was 620%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.