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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. For example, the W.W. Grainger, Inc. (NYSE:GWW) share price has soared 265% in the last half decade. Most would be very happy with that. In the last week the share price is up 3.2%.
Since the stock has added US$1.5b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
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. 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.
Over half a decade, W.W. Grainger managed to grow its earnings per share at 21% a year. This EPS growth is slower than the share price growth of 30% per year, over the same period. 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).
Dive deeper into W.W. Grainger's key metrics by checking this interactive graph of W.W. Grainger's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of W.W. Grainger, it has a TSR of 288% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
W.W. Grainger shareholders have received returns of 12% over twelve months (even including dividends), which isn't far from the general market return. It has to be noted that the recent return falls short of the 31% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes W.W. Grainger a stock worth watching. 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 be aware of the 2 warning signs we've spotted with W.W. Grainger .